This article was originally published in S&P Global on March 25, 2026 and has been shortened.

After a strong start to the year, the U.S. economic picture has grown more complicated. Growth remains positive, but a number of headwinds — most notably the escalating conflict in the Middle East — have tempered earlier optimism.

Growth Still Positive, but Slower Ahead

S&P now forecasts U.S. GDP growth of 2.2% for 2026, followed by an average of 1.9% annually through 2029. That's a downward revision from where expectations stood just a few months ago, driven largely by geopolitical uncertainty and an oil supply shock stemming from the Middle East conflict.

Inflation to Spike, but Potentially Briefly

One of the more notable near-term concerns is inflation. S&P's Chief Economist for the U.S. and Canada noted that the recent oil shock could push headline inflation toward 4% in the short term, though core inflation is expected to rise only moderately — to around 3% — assuming the supply disruption proves temporary. For business owners, this means continued pressure on input costs in the months ahead, even if conditions are expected to ease as the year progresses.

Labor Market Softening

Labor market conditions have softened, though they remain broadly consistent with trend growth. S&P anticipates the unemployment rate will drift higher in the latter part of 2026 and into 2027 as output growth slows below its potential. For employers, this could mean a gradual easing of the tight hiring conditions of recent years — though wage pressures may persist in skilled trades and specialized roles.

Interest Rates: Modest Relief on the Horizon

S&P pencils in one rate cut of 25 basis points late this year, followed by an additional 75 basis points in 2027, as the Federal Reserve works toward the lower bound of neutral policy rates. Businesses carrying variable-rate debt or planning capital projects may find some relief over the next 12–18 months, though cuts are expected to be gradual.

Construction and Supply Chain Costs Rising

For businesses in construction, real estate, or capital-intensive industries, cost pressures are a particular concern right now. S&P's Engineering and Construction Cost Indicator climbed to 69.2 in March, up from 62.6 in February, with materials and equipment costs rising sharply across all tracked components. Containerized freight rates are expected to rise due to war-risk premiums, insurance surcharges, and congestion fees — often faster than underlying commodity prices — as shipping networks adjust to disruptions in the Middle East.

The Bottom Line

The U.S. economy remains on a growth trajectory, but 2026 is shaping up to be a year that rewards careful planning. Businesses should be prepared for continued cost pressures, modest interest rate relief later in the year, and a labor market that is slowly rebalancing. S&P notes that risks to the growth outlook are squarely to the downside, tied primarily to the duration and severity of the Middle East conflict.

As always, First Community Bank and Trust is here to help you navigate these conditions — whether that's managing cash flow, planning for capital needs, or simply talking through what the economic environment means for your business.

 

About S&P Global
S&P Global provides essential intelligence that helps governments, businesses, and individuals make confident decisions. Through a combination of data, analytics, and deep market insights, S&P Global supports organizations in navigating complexity, managing risk, and identifying new opportunities. With a global presence and a commitment to transparency and innovation, S&P Global plays a critical role in helping markets function efficiently and enabling long-term growth across the world.

 

About First Community Bank and Trust
First Community Bank and Trust is a privately-owned bank. Established in 1916 First Community Bank and Trust has been serving Beecher, IL, Peotone, IL and the surrounding communities for over 110 years. Our commitment to providing the best banking products and services is matched only by our outstanding customer service. We offer traditional community banking services, including mortgage, consumer, and commercial lending, as well as state of the art electronic banking services.

Press Contact:
Steve Koehn, Senior Vice President
First Community Bank and Trust
(708) 946-2246

 

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