Tariffs Will Hit Slowing U.S. Economy Hard in 2026, OECD Says

The U.S. and global economies are set to slow less sharply this year than previously expected, but will continue to lose momentum in 2026 as higher tariffs take an increasingly large toll on activity, the Organization for Economic Cooperation and Development said Tuesday.

In a quarterly report, the Paris-based research body forecast the U.S. economy will grow 1.8% this year and 1.5% next year, having expanded by 2.8% in 2024. In June, the OECD projected growth of 1.6% this year and 1.5% in 2026.

“Growth has been a bit more resilient than we expected,” said Alvaro Pereira, the OECD’s chief economist. “But in spite of that resilience, some indicators are weakening.”

The global economy is now forecast to grow by 3.2% this year, a slight slowdown from the 3.3% expansion recorded in 2024 and stronger than the 2.9% projected in June. In 2026, the global economy is expected to grow by 2.9%, an unchanged forecast. The OECD expects the slowdown to be more apparent in the second half of this year than it was in the first as the boost from businesses building stocks ahead of the rise in duties fades.

Surveys of purchasing managers released Tuesday pointed to a slowdown in business activity in the U.S., India, the U.K. and Australia during the early weeks of September, but a slight acceleration in the eurozone.

Surveys of purchasing managers released Tuesday pointed to a slowdown in business activity in India, the U.K. and Australia during the early weeks of September, but a slight acceleration in the eurozone.

The OECD said economies around the world could grow more slowly than forecast if further rises in tariffs are implemented or inflation revives. A sharp and sudden fall in equity markets if investors become less comfortable with the risks they face could also harm growth.

The OECD estimated that the overall effective U.S. tariff rate on imports rose to 19.5% at the end of August from 15.4% in mid-May, reaching its highest level since 1933. It forecast a pickup in inflation to an average of 3% in 2026 from 2.7% this year.

“The impacts of higher tariff rates are yet to be fully felt in the U.S. economy,” the OECD said. “This reflects a combination of factors, with firms making use of inventories and ample profit margins to avoid or absorb the initial impact of higher tariffs, lags between the announcement and imposition of higher tariff rates, and the exemption of goods already in transit from higher tariff rates.”

But while U.S. inflation is set to accelerate as tariffs push prices of imports higher, the research body expects the Federal Reserve to respond to signs of weakness in the labor market by following up last week’s reduction in its key interest rate with one more cut before the end of this year, and two in early 2026.

“There are downside risks,” Pereira said. “This makes it a difficult balancing act.”

President Trump has been pressuring the Fed to lower borrowing costs more quickly, and has taken steps to gain control of its policymaking committee. The OECD said that independent central banks are more likely to deliver low and stable inflation than those whose autonomy has been compromised.

The OECD said high levels of investment in new technologies had helped boost activity in the U.S., although not enough to offset the impact from higher tariffs.

“A drop in net immigration and reductions in the federal workforce are also anticipated to soften economic growth,” the OECD said.

The research body, which advises member governments that include the U.S. on policy, repeated its call for measures to halt and if possible reverse the rise in debt that has pushed bond yields higher this year.

“There is growing concern about future fiscal risks,” the OECD said, noting that those worries were focused on rich economies such as the U.S. and France.

As evidence, the research body said the premium paid by government borrowers from developing economies compared with their advanced-economy counterparts is at its lowest since 2007.

Without action the OECD warned governments might be unable to respond as they would like when the next shock hits their economies.

“It’s possible some countries will face some unpleasant surprises down the line,” Pereira said.

Write to Paul Hannon at paul.hannon@wsj.com