Higher gasoline prices will weigh moderately on consumption, but there are signs that investment will broaden out beyond AI-related spending. We expect GDP growth to average 2.2% this year and next, marginally above its 2025 pace. Higher inflation will keep the Fed on hold this year but, if oil prices fall back sharply by early 2027 as our baseline forecasts assume, then there will be scope for the Fed to push through one final interest rate cut next year, to take the fed funds target range to between 3.25%–3.50%.
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