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 investors and policymakers with a sobering macro scorecard as the first quarter drew to a close: Q4 2025 GDP growth was revised to a 0.7% annualised rate, February nonfarm payrolls shed 92,000 jobs against a consensus estimate of 50,000 to 59,000 gains, the unemployment rate edged up to 4.4%, and headline consumer price inflation held at 2.4% year-on-year with core CPI steady at 2.5% — all while the Federal Reserve kept its benchmark rate pinned at 3.5%–3.75% for a second consecutive meeting, citing elevated uncertainty from an Iran-driven oil shock and a labour market that Chair Jerome Powell described as having job creation close to zero. The confluence of slowing growth, a fractured labour market, and sticky inflation has placed the central bank in one of its most constrained positions in recent memory, with financial markets now pricing the next rate reduction no earlier than July, and some strategists pushing that timeline out to December.

Inflation and the Fed: Holding the line amid an energy shock

The Bureau of Labor Statistics reported on March 11 that the Consumer Price Index rose 2.4% in the 12 months through February 2026, unchanged from January and at its lowest level since May 2025. On a monthly basis, the index increased a seasonally adjusted 0.3%, accelerating slightly from the 0.2% gain in January. Shelter inflation, while slowing, rose 0.2% for the month and remained the largest single contributor to the monthly increase. Food prices climbed 0.4% over the month and were up 3.1% from a year earlier, with the price of uncooked ground beef up roughly 15% over the past 12 months as the U.S. cattle supply sits at multi-decade lows.

Stripping out volatile food and energy prices, core CPI posted a 0.2% monthly gain and a 2.5% annual rate — the lowest reading on the core measure since March 2021, yet still sitting 50 basis points above the Fed’s 2% objective. Analysts at Moody’s cautioned that the reported headline figure is likely understating true underlying inflation by roughly 0.3 percentage point due to a data collection gap during the federal government shutdown in October and November 2025, which caused statisticians to assume no price changes had taken place across most categories during that month.

The February CPI report arrived days before the Iran war’s impact on energy prices could be fully observed in the data. Some economists estimate headline CPI could rise as high as 3.5% by year-end if current crude oil disruptions persist, with gasoline potentially approaching $5 per gallon in the second quarter. That possibility weighed heavily on deliberations at the March FOMC meeting.

On March 18, the Federal Open Market Committee voted 11–1 to maintain the federal funds rate in a target range of 3.5% to 3.75%, extending its pause for a second straight meeting following three consecutive 25-basis-point cuts in the latter half of 2025. The lone dissent came from Governor Stephen Miran, who preferred an immediate quarter-point reduction amid rising concerns about labour market deterioration. In its post-meeting statement, the committee noted that “inflation remains somewhat elevated” and that “uncertainty about the economic outlook remains elevated,” with specific reference to the implications of developments in the Middle East.

The updated Summary of Economic Projections (dot plot) released alongside the March decision showed that the median FOMC participant projects one rate cut in 2026 and another in 2027. The Fed also revised its 2026 PCE inflation forecast higher, to 2.7% for both headline and core measures, up from December projections of 2.4% and 2.5% respectively. Its growth forecast for 2026 was revised down to an average annualised rate of 0.9%. Following the decision, futures markets pulled forward pricing for the first cut to July, while Goldman Sachs Asset Management maintained a base case for two cuts in the second half of the year, contingent on the pace of Middle East de-escalation.

Powell’s final meetings: Leadership transition adds uncertainty

The March 18 decision may prove to be among Powell’s penultimate as Fed Chair: his term expires in May, and President Donald Trump has nominated former Fed Governor Kevin Warsh as his successor. Warsh has historically signalled a preference for lower rates, though his current thinking on the appropriate policy response to an oil shock and sticky inflation has not been made public. The transition in Fed leadership, combined with a fluid geopolitical picture, is expected to keep uncertainty premiums elevated in rate markets through at least mid-year. The next FOMC meeting is scheduled for April 28–29, 2026.

Employment picture: A fractured labour market

The February employment report, released by the Bureau of Labor Statistics on March 6, delivered a sharper-than-expected deterioration in hiring conditions. Nonfarm payrolls fell by 92,000 for the month, far worse than the consensus estimate of a 50,000 to 59,000 gain and below the downwardly revised January total of 126,000. It was the third time in five months that the economy registered a net job loss, and the largest monthly decline in four months. The change in December payrolls was also revised down by 65,000, from 48,000 to negative 17,000.

Health care was the primary drag, shedding 28,000 positions — largely attributable to a strike at Kaiser Permanente that sidelined more than 30,000 nurses in Hawaii and California. Federal government employment fell by a further 10,000 in February; federal payrolls have now declined by approximately 327,000 since January 2025, a reduction of roughly 11% of the total federal workforce. Manufacturing shed 12,000 jobs — extending a run that has seen the sector lose 100,000 positions since the start of the Trump administration. Transportation and warehousing declined by 11,000. Social assistance was among the few sectors posting a gain, adding 9,000 positions.

The household survey, which feeds the headline unemployment calculation, showed the unemployment rate ticking up to 4.4% in February from 4.3% in January, inching back toward the four-year high of 4.5% recorded in November 2025. The number of unemployed rose by 203,000 to 7.57 million. Long-term unemployment also climbed, with the average duration of unemployment reaching 25.7 weeks — the longest since December 2021. The broader U-6 measure of underemployment edged down slightly to 7.9% from 8.1%.

One counterweight to the headline weakness was wage growth. Average hourly earnings increased 0.4% for the month and 3.8% from a year ago, both 0.1 percentage point above forecast, and both still running ahead of headline inflation — preserving at least a modest degree of real purchasing power for employed workers even as the jobs market softens. The participation rate edged down 0.1 percentage point to 62.0%. As noted in PreMarket Daily’s week-ahead preview, the March nonfarm payrolls report — due April 3 — carries a consensus estimate of just 57,000, with a one-time boost expected from the resolution of the Kaiser strike. A print meaningfully below that threshold would intensify calls for the Fed to accelerate its easing timeline.

Growth trajectory: GDP contraction risk sharpens

The Bureau of Economic Analysis’s second estimate for Q4 2025 GDP, released March 13, confirmed a marked deceleration in economic activity. Real GDP grew at an annualised rate of just 0.7% in the October-to-December quarter, a downward revision of 0.7 percentage point from the advance estimate of 1.4%, reflecting cuts to exports, consumer spending, government outlays, and investment. Consumer spending, the largest component of GDP, rose just 2.0% for the quarter, down from 3.5% in Q3. The BEA estimated that reduced labour services from furloughed federal employees during the government shutdown subtracted approximately 1.0 percentage point from Q4 growth.

The Q4 reading follows a strong 4.4% expansion in Q3 2025, making the deceleration all the more abrupt. For context, real GDP in Q2 2025 increased 3.8%. The sharp swing lower in the final quarter raises questions about the economy’s underlying momentum heading into 2026, particularly given the subsequent deterioration in the labour market and the oil-price shock associated with the Iran conflict that postdates the Q4 data. The Fed’s own revised growth projection for full-year 2026 stands at an average annualised rate of 0.9% — a figure that implies the risk of at least one negative quarterly print is non-trivial.

On the inflation side of the national accounts, the Personal Consumption Expenditures price index — the Fed’s preferred inflation measure — posted a seasonally adjusted gain of 0.3% in January, putting the annual rate at 2.8%. The core PCE, which the Fed monitors most closely for policy purposes, ran at an annual rate of 3.1% in January, well above the central bank’s 2% target and fuelling concern among several FOMC members that the last mile of disinflation may prove elusive. The next PCE reading, covering February, is due in the days ahead and will be a key input for the April 28–29 FOMC meeting.

Corporate earnings and leading indicators

Against this macro backdrop, corporate earnings season for Q4 2025 concluded with broadly mixed results. The housing sector offered a cautionary signal: as detailed in earlier PreMarket Daily coverage, KB Home’s Q1 earnings revealed a 65% collapse in earnings per share, pointing to severe affordability constraints that have yet to ease despite modest declines in mortgage rates. Consumer sentiment data released alongside the GDP second estimate also pointed toward rising economic anxiety, with households citing elevated energy costs and labour market uncertainty as primary concerns. The University of Michigan’s consumer sentiment index has trended lower through much of the first quarter of 2026, a pattern historically associated with reduced discretionary spending in the quarters ahead. Total nonfarm employment growth for the full year 2025 was revised down sharply to 181,000 net new positions — implying average monthly gains of just 15,000, a fraction of the pace required to absorb new labour market entrants.

Synthesis: A stagflationary shadow

Taken together, the data mosaic as of March 28, 2026 presents the Federal Reserve with a textbook stagflationary challenge: growth is slowing sharply, the labour market is deteriorating, and inflation remains stuck above target — complicated further by an exogenous energy shock whose duration and magnitude remain unknown. The FOMC’s formal stance — data-dependent, attentive to both sides of its dual mandate, and signalling one cut as the median outcome for 2026 — reflects that tension with unusual transparency. As noted in PreMarket Daily’s March 27 roundup, markets are navigating this data in a context further complicated by geopolitical brinkmanship: the Trump administration’s extended Iran deadline adds another layer of uncertainty to the energy price outlook and therefore to the inflation trajectory that will ultimately determine the pace and depth of any Fed easing. The next critical inputs — March CPI (due April 10), March payrolls (due April 3), and the April 28–29 FOMC decision — will together determine whether the current pause extends further or whether a deteriorating growth picture eventually overrides the Fed’s inflation caution.