Treasury Report: U.S. Economy Shows Resilient Growth, Cooling Inflation as 2026 Begins
WASHINGTON — The U.S. economy is transitioning into 2026 with underlying strength, according to a comprehensive assessment released Monday by the Department of the Treasury. The report, issued ahead of the government's Quarterly Refunding meetings, points to a combination of solid economic expansion, a continued cooling of inflation, and a labor market that remains historically tight.
The analysis, prepared for the Treasury Borrowing Advisory Committee (TBAC), indicates that growth remained robust through the end of 2025, even as data collection faced delays following last fall's federal government shutdown. The most recent official figures show real Gross Domestic Product (GDP) expanded at an annualized rate of 4.4% in the third quarter of 2025, accelerating from 3.8% in the second quarter. This surge was fueled by resilient consumer spending, increased government outlays, and a significant uptick in business investment.
A key highlight of the report is the role of business investment, particularly in equipment and artificial intelligence infrastructure, as a primary engine for growth. Data from the Census Bureau cited by Treasury shows shipments of core capital goods averaged $77.9 billion in October and November, marking a 6.7% annualized increase from the previous quarter.
On the labor front, the Treasury describes supply and demand as "roughly in balance." The unemployment rate saw a modest uptick to an average of 4.5% in November and December, compared to 4.3% in the third quarter. Officials attribute this change primarily to a slowdown in hiring rather than a wave of layoffs. The participation rate for workers in their prime working years averaged 83.8% late last year, holding above pre-pandemic levels—a sign of enduring worker engagement.
Perhaps the most encouraging news for households and policymakers alike is the further easing of inflationary pressures. Core consumer price inflation, which excludes volatile food and energy costs, averaged just 0.1% per month in the fourth quarter of 2025, down from 0.3% in the prior quarter. The twelve-month core inflation rate slowed to 2.6% by December, moving closer to the Federal Reserve's long-term target. A continued deceleration in housing costs, with rent inflation averaging 0.2% per month in Q4, provided significant relief.
The report also cites declining perceptions of recession risk as a marker of economic resilience. The Wall Street Journal's January survey of economists placed the probability of a recession within the next year at 27%, the lowest reading since early 2025.
This economic snapshot comes as the Treasury Department outlined its borrowing needs for the coming months, projecting $574 billion in net marketable debt for the current quarter. Further details on the government's refunding strategy are expected Wednesday.
Reaction & Analysis:
"The data confirms the soft landing narrative is firmly intact," said Michael Chen, a senior economist at the Hartford Policy Institute. "Business investment, especially in tech and AI, isn't just a buzzword—it's providing a tangible, structural boost to productivity and growth that should extend this cycle."
"This is a best-case scenario playing out in real-time," remarked Sarah Jenkins, a portfolio manager at Great Lakes Capital. "Cooling inflation without a spike in unemployment is exactly what the Fed aimed for. It gives them room to consider rate cuts later this year without stoking fears of a policy mistake."
"Let's not pop the champagne just yet," countered David R. Vance, a fellow at the Economic Accountability Project. "This 'firm footing' is built on a mountain of debt. The Treasury is announcing nearly $600 billion in new borrowing this very quarter. We're celebrating growth paid for with a credit card, and the bill, plus soaring interest costs, will come due for future taxpayers."
"The sustained high labor force participation is the unsung hero here," noted Dr. Anya Sharma, a labor economist at Georgetown University. "It adds crucial capacity to the economy, helps moderate wage-pressure inflation, and suggests that policy measures to draw workers back after the pandemic have had a lasting effect."
Sources: Bureau of Labor Statistics, Consumer Price Index – December 2025; Bureau of Economic Analysis, Personal Income and Outlays, November 2025; U.S. Department of the Treasury.