MNI: OECD Sees 2026 Tariff Slowdown, Diverging Policy Rates

Tariffs will slow global economic growth in 2026 with damage only deferred this year by front-loading of shipments and a U.S. technology boom, the OECD said Tuesday.

“The full effects of higher tariffs have yet to be felt, but are becoming increasingly visible in spending choices, business costs and consumer prices, especially in the United States,” according to the Paris-based group’s outlook report. 

Gross domestic product will slow to 2.9% in 2026 from 3.2% this year according to the OECD, helping slow inflation across most advanced economies that aren’t imposing tariffs. 

U.S. growth slows to 1.7% next year from 2% and China’s growth to 4.4% from 5%, and the OECD projections show euro area growth is little changed at 1.2%. Inflation in the U.S. quickens to 3% in 2026 from 2.7% and in Japan it slows to 2.2% from 3.2%.

“Higher tariff rates are yet to be fully felt in the US economy,” the report said. 

Central bank policy rates will diverge based on different inflation outlooks, the OECD said:

• “In the United States, the federal funds rate is projected to decline gradually from 3.75-4% at present to 3.25-3.5% by end-2026 and remain unchanged afterwards.”
• “In the euro area, policy rates are projected to remain unchanged until end-2027, with inflation staying close to the target and the deposit facility rate at 2%. The decline in Eurosystem bond holdings is expected to continue broadly at the pace observed in 2025, with no reinvestment of redemptions under either the asset purchase programme or the pandemic emergency purchase programme.”
• “In Japan, the policy rate is projected to increase gradually from 0.5% at present to 2% by the end of 2027, as core inflation stabilises around 2% and a negative output gap gradually closes. The government bond holdings of the Bank of Japan are expected to decline further, as the bank’s monthly gross purchases are to be reduced by about JPY 400 billion per quarter until the first quarter of 2026, and by about JPY 200 billion per quarter thereafter.”
• “Reductions in policy rates are projected to have now ended in Canada, and to cease in the first half of 2026 in Korea and the United Kingdom and in the second half of 2026 in Australia.”

“Central banks should remain vigilant, continuing to lower rates where inflation is firmly at or returning to targets, yet be ready to adjust course in case of renewed inflationary pressures or unexpected labour market weakness” the OECD concluded.