US Economics Mid-Year Outlook

The US economy is projected to achieve trend-like growth of 2.3% in 2026 as robust AI-led business investment offsets a slowdown in consumer spending caused by high energy prices.

Key Takeaways

• 1.The US economy is shifting to a 'Capex over Consumption' phase where structural AI investment offsets energy-driven consumer headwinds.
• 2.The Fed is expected to remain on hold through 2026 due to firm inflation and supply shocks, with modest easing delayed until 2027.
• 3.AI investment is proving structural rather than cyclical, with hyperscaler capex projected to exceed $1 trillion in 2027.

Table of Contents

• Key takeaways
• Alternate scenarios
• Special topics
• Executive Summary
• The Baseline: Benign de-escalation, capex over consumption
• Key inputs from our Public Policy team for 2026-27
• Consumption: Energy headwind neutralizes fiscal stimulus
• Business spending: Full steam ahead
• Residential investment: House arrest
• Fiscal policy: OBBBA, tariff refunds, and more defense spending
• Trade and inventories: A more durable tariff regime
• Inflation: A gradual descent
• Labor market: The 'curious balance' persists
• Monetary policy: A more neutral place
• Alternative scenarios, alternative paths

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