S&P 500 2026 Forecast Rises on Fed Easing and AI
S&P 500 2026 forecast leans on the Fed's SEP showing easing inflation and a policy-rate descent, helping justify strategist calls for higher index levels.
KEY TAKEAWAYS
- The Fed's SEP projects PCE inflation at 2.4% and a 3.4% federal funds midpoint by end-2026.
- Sell-side models expect an AI supercycle to lift S&P 500 earnings about 13-15% for at least two years.
- Strategists model S&P 500 scenarios as high as 8,200 but note those are non-regulatory projections.
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The S&P 500 2026 forecast is anchored in the Federal Reserve’s Dec. 10, 2025 Summary of Economic Projections, which shows moderating inflation and a gradual decline in the policy rate. Sell-side models expect AI-driven above-trend earnings to support higher index levels.
Fed Projections Signal Gradual Easing
The Federal Reserve’s Summary of Economic Projections (SEP) released on Dec. 10, 2025, presents median forecasts for real GDP growth, unemployment, inflation, and the federal funds rate through 2028. It projects Q4-to-Q4 real GDP growth of 1.7% in 2025, rising to 2.3% in 2026, then moderating to 2.0% in 2027 and 1.9% in 2028, with a longer-run estimate of 1.8%. The median unemployment rate is forecast at 4.5% in 2025, declining to 4.4% in 2026 and 4.2% in 2027 and 2028, matching the longer-run level.
The SEP expects headline personal consumption expenditures (PCE) inflation to ease from 2.9% in 2025 to 2.4% in 2026, then to 2.1% in 2027 and 2.0% in 2028. Core PCE inflation, which excludes food and energy, is projected at 3.0% in 2025, falling to 2.5% in 2026, 2.1% in 2027, and 2.0% in 2028.
The median path for the federal funds rate midpoint is 3.6% at the end of 2025, declining to 3.4% at the end of 2026 and 3.1% at the end of 2027 and 2028, with a longer-run level of 3.0%. This trajectory suggests rate cuts in 2026 are more likely. The SEP notes these longer-run projections represent each participant’s assessment of where variables would converge under appropriate monetary policy without further economic shocks.
AI Momentum Shapes Earnings Outlook
Sell-side strategists frame an AI supercycle as the key driver of bullish 2026 S&P 500 scenarios, modeling above-trend earnings growth of 13% to 15% for at least two years. They treat this earnings boost as central to higher prospective index levels. Large asset managers add that AI-related capital spending and a potential productivity surge could raise U.S. trend growth to about 3%, though they caution that equity valuations may already reflect substantial optimism.
Private-sector strategists have published S&P 500 level scenarios reaching as high as 8,200 for 2026. These targets represent strategist projections rather than regulator forecasts.
Together, the Fed’s outlook for easing inflation and a gradual policy-rate decline, combined with AI-driven earnings assumptions, form the explicit rationale cited by strategists for bullish 2026 forecasts. However, manager research highlights valuation and return-profile risks that could limit gains if optimistic earnings or productivity effects do not materialize as expected.
"The longer-run projections represent each participant’s assessment of the value to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy." — Federal Reserve Summary of Economic Projections
