Economic scorecard, March 28, 2026: GDP slows to 0.7%, unemployment hits 4.4% as Fed holds at 3.5%–3.75%

NEW YORK, March 28, 2026 — The United States economy presented a deeply mixed macro picture as the final weekend of March 2026 arrived: Q4 2025 GDP was revised down to a meagre 0.7% annualised rate, nonfarm payrolls shed 92,000 jobs in February, the unemployment rate held at 4.4%, headline CPI remained at 2.4% year-over-year with core at 2.5%, and the Federal Reserve held its benchmark federal funds rate steady in the 3.5%–3.75% target range for a second consecutive meeting. Complicating all of these readings is a geopolitical wildcard that was absent from the data: the Iran conflict and its cascading effects on global oil markets, which now threaten to materially worsen every gauge on the scorecard in the months ahead. The next FOMC meeting is scheduled for April 28–29, 2026, and markets are already recalibrating expectations accordingly.

Inflation and the Fed: A deceptive calm before the storm

On the surface, the February 2026 inflation data appeared constructive. The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% on a seasonally adjusted basis in February, with the all items index rising 2.4% over the last 12 months before seasonal adjustment. Stripping out volatile food and energy prices, core CPI posted a 0.2% monthly reading and a 2.5% annual rate, in line with forecasts.

These figures — the lowest headline rate since May 2025 — were broadly welcomed at the time of their release on March 11. But analysts and policymakers were already looking through the report even as it landed. Prices consumers paid for a broad range of goods and services rose in line with expectations for February, offering a final look at inflation pressures before an oil shock tied to the Iran war rattled the outlook. The data predates the recent surge in oil prices tied to the war with Iran, meaning any impact from higher energy costs will likely show up in the months ahead.

The Fed’s preferred inflation gauge, the PCE price index, delivered a starker reading. The PCE price index — the Federal Reserve’s preferred gauge — increased 2.8% through January 2026, while core PCE came in at 3.1%. That divergence between the headline CPI and the core PCE is a source of acute policy discomfort. Both PCE and core PCE inflation are now expected to be higher this year, at 2.7% each, compared with December projections of 2.4% and 2.5% respectively.

At its March 17–18 meeting, the FOMC made its position explicit. The Federal Reserve voted to hold its key interest rate steady as policymakers navigate their way through higher-than-expected inflation readings, mixed signs on the labour market and a war, with the FOMC voting 11-1 to keep the benchmark federal funds rate anchored in a range between 3.5% and 3.75%. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by one quarter of a percentage point.

Despite the elevated uncertainty, officials again signalled they still expect a few rate cuts ahead. The closely watched dot plot, which reflects individual members’ rate projections, pointed to one reduction this year and another in 2027, though the timing remains unclear. The market is currently pricing in one 25-basis-point cut in December 2026 and another in December 2027. The next opportunity for the Fed to act is the scheduled April 28–29, 2026 FOMC meeting.

The official FOMC statement pointed to persistent uncertainty on multiple fronts. Available indicators suggest that economic activity has been expanding at a solid pace, but job gains have remained low, the unemployment rate has been little changed in recent months, and inflation remains somewhat elevated. The implications of developments in the Middle East for the U.S. economy are described as uncertain — a line that market participants read as a signal that the central bank is effectively paralysed between its dual mandate obligations until the geopolitical picture clarifies. For more on the Fed’s March decision, see CNBC’s full coverage of the March 2026 rate decision.

Consumer sentiment: the canary collapses

The most alarming data point of the week came not from the BLS or BEA but from the University of Michigan. The University of Michigan’s final March consumer sentiment reading, released on March 27, 2026, revealed a sharper-than-expected decline in American economic optimism, with the headline index tumbling to 53.3, down from a preliminary reading of 55.5 and well below February’s 56.6. This marks the lowest level of consumer confidence since late 2025, signalling that the soft-landing narrative many investors had embraced for 2026 is facing its most significant challenge yet.

The one-year inflation expectation surged to 3.8% from February’s 3.4%, which is particularly troubling for the Fed as it indicates that inflation expectations are becoming unanchored once again, reminiscent of the volatile period seen in 2022. The five-year inflation expectation, while slightly lower at 3.2% compared to February, remains uncomfortably high for a Federal Reserve that has staked its credibility on price stability.

Employment picture: a labour market under strain

The February employment report, released March 6, delivered an unambiguous shock. Nonfarm payrolls in February fell by 92,000, compared with the estimate for 50,000 and below the downwardly revised January total of 126,000. The US unemployment rate rose to 4.4% in February 2026, up from 4.3% in January and slightly above market expectations, inching closer to November’s four-year high of 4.5%.

Sector-level detail painted a concerning picture. Health care, the primary growth driver in payrolls, saw a loss of 28,000, due largely to a strike at Kaiser Permanente that sidelined more than 30,000 workers in Hawaii and California. Federal government employment also fell, off 10,000 for the month; President Donald Trump’s efforts to pare federal payrolls have seen a slide of 330,000 jobs, or 11% of the total workforce, since October 2024. Manufacturing jobs fell again, down 12,000 between January and February 2026; since January 2025, the manufacturing sector has lost 100,000 jobs.

One bright spot persisted within the otherwise grim report. Average hourly earnings increased 0.4% for the month and 3.8% from a year ago, both 0.1 percentage point above forecast. Wage growth remained stronger than expected, at a 0.4% monthly gain, lifting the annual rate to 3.8% — still above inflation. The longer-term unemployment picture also darkened: long-term unemployment surged higher, with the average duration of unemployment at 25.7 weeks, the longest since December 2021.

Following the payrolls report, traders pulled forward expectations for the next cut to July and priced in a greater chance of two cuts before the end of the year, according to the CME Group’s FedWatch gauge of futures market pricing. The March consumer sentiment collapse has since shifted that pricing further, with markets now debating whether the oil shock renders any near-term easing politically and economically untenable. For a comprehensive look at the week ahead in labour data, see PreMarket Daily’s week ahead for March 30, 2026, including the March NFP consensus.

Federal government job losses: a structural shift

The labour force grew modestly by 18,000 to 170.48 million in February, pushing the participation rate down 0.1 percentage point to 62.0%. Meanwhile, the broader U-6 unemployment rate, which includes discouraged and underemployed workers, declined to 7.9% from 8.1%. The slight improvement in U-6 offered a marginal counterweight to the deteriorating headline figures, though economists cautioned against over-interpreting a single month of volatile data in the context of ongoing structural changes in the federal workforce. For more on the week’s trading dynamics and sectoral moves, see Friday’s session recap on PreMarket Daily.

Growth trajectory: a sharp deceleration demands context

The Q4 2025 GDP revision, released by the Bureau of Economic Analysis on March 13, 2026, delivered the most stark single figure of the current economic cycle. Real gross domestic product increased at an annual rate of just 0.7% in the fourth quarter of 2025, according to the second estimate released by the U.S. Bureau of Economic Analysis. This represented a downward revision of 0.7 percentage point from the previous estimate, reflecting downward revisions to exports, consumer spending, government spending, and investment.

The severity of the deceleration becomes clear in context. In the third quarter, real GDP had increased 4.4% — meaning the economy went from its fastest expansion in years to its slowest quarter-over-quarter in a single reporting period. The government shutdown bore partial responsibility: BEA estimates that the reduction in services provided by the federal government subtracted about 1.0 percentage point from real GDP growth in the fourth quarter.

Consumer spending, the largest single driver of U.S. GDP, also softened in the quarter. Consumer spending rose 2% for the quarter, following a 0.4 percentage point downward revision that represented a decline from the 3.5% increase in the third quarter. The PCE price index for January added further pressure: the personal consumption expenditures price index posted a seasonally adjusted gain of 0.3% for the month, putting the annual rate at 2.8%.

The Fed’s own revised growth projections reflect a cautious recalibration. The Fed revised its GDP growth forecasts higher for both 2026 at 2.4% versus 2.3% seen in December and 2027 at 2.3% versus 2%. However, that upward revision to the 2026 forecast pre-dates any material economic impact from the Iran conflict, which only began to affect oil markets in early March. At the same time, the central bank revised lower its growth forecast to average 0.9% in 2026 in one internal scenario model, according to Yahoo Finance’s reporting on the FOMC meeting. The third and final Q4 GDP estimate is scheduled for release on April 9, 2026.

Leading indicators and the Iran risk premium

Forward-looking indicators darkened materially in the week ending March 27. The combination of a plunging University of Michigan sentiment index, elevated oil prices, and persistent core inflation places the Fed in a position of acute dual-mandate tension. A key new concern is the Middle East conflict, which has driven oil prices close to $100 per barrel, and the Fed has explicitly flagged uncertainty around its economic impact.

As of March 23, the S&P 500 and Nasdaq had extended their year-to-date declines, now down 5.70% and 8.40% from their respective highs, while a strengthening U.S. dollar — supported by rapidly rising oil demand — compounded the downward pressure on foreign markets. Whether the energy shock proves transitory or entrenched will be the defining macro question of Q2 2026. For the full context of how Friday’s session processed these macro signals, see PreMarket Daily’s Friday roundup on GDP and consumer sentiment data. The BEA’s next PCE release and the third estimate of Q4 2025 GDP are both due April 9, the same day as the March CPI print from the Bureau of Labor Statistics, and the March nonfarm payrolls report lands April 3.

Synthesis: a scorecard of compounding risks

Taken together, the data as of March 28, 2026 describe an economy that arrived at the precipice of Q2 in a state of genuine uncertainty rather than comfortable deceleration. GDP growth has collapsed from a robust 4.4% in Q3 2025 to a near-stagnant 0.7% in Q4. The labour market has shed jobs in multiple months, and while wage growth remains above inflation, the structural deterioration in job creation — particularly in the federal sector — represents a durably changed employment landscape. Inflation, though lower than its 2022–2024 peaks, remains above the Fed’s 2% target on every measure, with the core PCE at 3.1% representing the most stubborn gauge of underlying price pressure.

The Federal Reserve, which completed three 25-basis-point cuts in late 2025, is now effectively frozen. Fed officials are divided over the future path of interest rates, reflecting a tension between the need to contain inflation and the desire to support the labour market; several participants indicated that further reductions would likely be appropriate if inflation continues to decline, while others argued it may be prudent to hold steady, and some even raised the possibility that rate increases could become necessary if inflation remains persistently above target.

The Iran conflict has injected an exogenous shock that neither the data nor the models had fully absorbed by the time of this scorecard. Higher oil prices could complicate the inflation outlook in coming months, as increases in gasoline and other energy products often filter through to transportation, shipping and a wide range of consumer goods, with sustained gains in crude prices quickly showing up in headline inflation readings. Markets, policymakers, and corporate planners alike will spend the coming weeks attempting to determine whether the oil spike is a temporary shock to be looked through or the opening of a more protracted inflationary regime. The April 28–29 FOMC meeting, the March jobs report on April 3, and the March CPI print on April 10 will collectively define the trajectory of U.S. monetary policy for the rest of the year. Read the latest Federal Reserve FOMC statement from March 18, 2026 and the full February 2026 jobs report analysis from CNBC for primary source context.