U.S. Current Macroeconomic Snapshot & 2026 Outlook
GDP Growth
U.S. economic growth rebounded in 1Q26, with real GDP increasing at an annual rate of 2.0% (vs. just 0.5% in 4Q25 mainly due to a 43-day government shutdown that occurred in October and November). The main drivers for growth included increase in consumer spending, investment, exports, and government spending. S&P expects GDP growth of 2.2% for the U.S. in 2026, despite the oil shock which could push inflation higher. The agency believes that the oil supply disruption will be temporary.
Inflation
In March 2026, the U.S. annual inflation surged to 3.3% y/y (vs. 2.4% in February 2026 and 2.7% in December 2025), highest in nearly two years, as energy costs spiked 10.9% in the wake of the U.S.-Iran war. However, core prices (excluding food and energy) increased at a much-reduced rate of just 0.2% in March 2026 and 2.6% y/y, reflecting that underlying inflation remained in control. In its March 2026 report, Federal Reserve forecasted inflation rate of 2.7% for 2026 but this is in stark contrast to Organization for Economic Cooperation and Development (OECD) forecast of 4.2% in 2026 (vs. 2.8%; projected in December 2025). The higher revision is due to the war in the Middle East, and the ongoing impact from U.S. tariffs (though lower in 2026).
Interest Rates
The Federal Reserve cut the benchmark interest rate to 3.50%–3.75% in December 2025 and has held the rates since then (maintained status quo in its latest April 2026 FOMC meeting) due to high inflation risk. Markets expect the Fed to hold the rates steady for the remainder of 2026 but will likely hike by 25bps in 3Q27.
Employment
U.S. employment increased by 178,000 in March 2026, beating the forecasts, and rebounded more than anticipated (vs. -133,000 in February 2026). Unemployment rate slightly improved to 4.3% in March 2026, compared to 4.4% in February 2026.
Net Interest Income (NII) and Net Interest Margin (NIM): 4Q25 and 1Q26
During 4Q25, the top five U.S. banks’ net interest income (NII) growth was underpinned by higher deposit and loan balances and lower deposit pricing as well as fixed-rate asset repricing, partially impacted by lower interest rates. Citigroup led NII growth ($15.7 Bn, +14% y/y), followed by Bank of America ($15.8 Bn, +10% y/y). JPMorgan Chase witnessed single-digit NII growth ($25.0 Bn, +7% y/y), while Wells Fargo saw more modest NII growth ($12.3 Bn, +4% y/y). In contrast, Goldman Sachs, which derive more revenue from markets and fees, saw smaller NII contributions ($3.7 Bn, +58% y/y; 35.6% of net revenues in 4Q25).
The differences in net interest margin (NIM) were more evident as peak margins varied by deposit franchise as deposits pricing continued to fall at a faster rate than loan yields in 2025. In 4Q25, Wells Fargo’s NIM was 2.6%, the highest among peers, largely benefitting from lower deposit pricing. JPMorgan and Citigroup closely followed, both with reported NIM of 2.5%. On the other hand, Bank of America’s NIM stood at 2.4%, while, Goldman Sachs, which is less focused on traditional lending, reported much lower NIM (0.9%).
Moving into 1Q26, the trend in NII growth has remained unchanged with all the players continuing to benefit from higher deposit and loan balances. Citigroup led the pack with 12% y/y NII growth, followed by Bank of America and JPMorgan Chase (both registering 9% y/y growth). Wells Fargo reported modest NII growth (5% y/y) despite additional benefit derived from the lower deposit costs. Goldman Sachs share of NII in overall income remained small, compared to its peers.
In contrast to 4Q25, three banks – Citigroup, Wells Fargo and JP Morgan Chase shared the leading position with NIMs of 2.5% each during 1Q26. Bank of America’s NIM stood at 2.0%, while Goldman Sachs low NIM (0.8%) continue to reflect its less focus on traditional lending. Overall, the sector is transitioning from peak NIM to normalization, with volume growth and share of fees increasing. However, NIMs declined for all banks in 1Q26 compared to 4Q25 reflecting impact of lower interest rates.
Outlook for 2026
Looking ahead, markets are forecasting a moderation in NII growth as the rates are lower in 2026 compared to 2025, but a cautious outlook exists for further rate cuts by Federal Reserve. This uncertainty is stemming from the fact that higher oil prices due to Iran war has drastically reduced room for Federal reserve rate cuts, especially in 2026.
Capital Adequacy Ratios: 4Q25 and 1Q26
The top five U.S. banks ended the year with strong capital positions, although majority of them witnessed sequential declines in their ratios due to aggressive share buybacks and organic loan growth. During 4Q25, the banks focused on building strong balance sheet, low debt, high cash reserves, and high-quality assets, to prepare themselves against any uncertainty related to regulatory landscape in 2026.
Key Performance Drivers
Despite 20bps dip from 3Q25, JPM’s CET1 ratio of 14.6% as of 4Q25 remained strong. The decline was driven by the acquisition/integration of the Apple Card portfolio, which added approximately $80 Bn in Risk-Weighted Assets (RWAs) before planned mitigation. In 1Q26, CET1 ratio further declined (14.3%) as higher net income impact was more than offset by capital distributions, higher RWAs, and higher accumulated other comprehensive loss.
CET1 ratio of 11.4% (-20bps vs. 3Q25) remains well above their regulatory minimum of 10.7%. Management noted a slight decline due to change in accounting methods for tax-related equity investments. For 1Q26, CET1 ratio further declined by 20bps to 11.2% mainly due to decline in shareholder’s equity.
CET1 ratio of 13.2% (-9bps q/q) was comfortably above its 11.6% regulatory requirement as it executes its multi-year reorganization. In 1Q26, CET1 ratio has further declined to 12.7% (-48bps q/q) reflecting impact of shareholder distributions and RWA growth. Multi-year reorganization still remains in force.
GS maintained a higher CET1 of 14.3% (stable q/q) as of 4Q25, compared to commercial peers, to account for the higher capital charges associated with its Global Banking & Markets division. In 1Q26, CET1 ratio dipped 180bps q/q to 12.5% primarily reflecting an increase in credit and market RWAs and a decrease in CET1 capital.
CET1 ratio of 10.6% (-37bps q/q) remains comfortably above its regulatory minimum of 8.5%. The sequential decrease was mainly led by accelerated capital returns and balance sheet expansion. The ratio further declined to 10.3% (-32bps q/q) in 1Q26, reflecting increase in RWAs and a decline in AOCI.
Outlook for 2026
The outlook for 2026 is positively impacted by the new proposal: Basel III Endgame Re-proposal. In March 2026, U.S. regulators (the FRB , FDIC , and OCC ) issued a major re-proposal of the 2023 Basel III Endgame rules. This is estimated to provide $87.7 Bn in system-wide CET1 relief, translating into a significant tailwind for the top five U.S. banks.
FRB – Federal Reserve Board; FDIC – Federal Deposit Insurance Corporation; OCC- Office of the Comptroller of the Currency
Asset Quality Performance: 4Q25 and 1Q26
In 4Q25, the top five U.S. banks demonstrated strong performance in asset quality, despite some weaknesses in specific pockets like credit cards and commercial real estate (CRE). Most of the top five U.S. banks reported NPL (Non-Performing Loan) ratios well below 1.00%, indicating that the high-interest-rate environment did not trigger a systemic wave of defaults as previously expected. Citigroup reported the strongest asset quality with NPL ratio of 0.48%, followed by Bank of America (0.49%) and JP Morgan (0.66%). Wells Fargo’s NPL ratio stood at 0.83% (down from 0.85% in 3Q25) as its CRE stress eased, while Goldman Sachs NPL ratio improved 6bps to 0.73% resulting from falling criticized loans.
In 1Q26, Citigroup continued to report strongest asset quality with NPL ratio of 0.44%, followed by Bank of America (0.49%) and JP Morgan (0.64%). Also, Wells Fargo remained the worst performing with NPL ratio staying high at 0.83%.
Outlook for 2026
Asset quality for the top five U.S. banks is expected to remain resilient, with manageable deterioration, concentrated in consumer unsecured credit and office CRE, instead of a broad based weakness. Strong capital, conservative reserves, and diversified earnings profiles keep the banks well positioned to absorb higher through the cycle credit costs.
Tech Investments- the catalyst for the sector transformation
In 2025, the U.S. banks technology spending centred around AI and automation and infrastructure modernization. JPMorgan Chase, Bank of America, Wells Fargo & Citigroup continued to dominate tech spending, with budgets reaching record highs to support complex cloud and AI integrations. JPMorgan Chase utilized its estimated $18 Bn technology budget for migrating data to the cloud to fuel over 300 AI use cases in production. Bank of America used its $13 Bn budget to focus heavily on its "Erica" AI assistant and internal infrastructure to handle its massive transaction volume. Wells Fargo & Citigroup focused spending on "regulatory tech" (RegTech) and operational resilience, modernizing core systems to meet stricter capital and risk management requirements. Goldman Sachs technology spending budget of $12-13 Bn remains consistent with the management’s view that technology is one of the firm’s largest ongoing investments. Key areas of spending include Core engineering & infrastructure; Data, analytics & AI; Cybersecurity, controls & regulatory technology; Client facing digital platforms; and Platform Solutions / payments technology.
