We judge that the recent strength in AI-related investment marks the start of a multi-year capex boom. We expect GDP growth to be 2.5% in both 2026 and 2027. While labour demand remains soft, the immigration crackdown should hold back labour supply growth and we expect the unemployment rate to peak at 4.7% in early 2026. With core inflation set to remain above the 2% target for some time, we think the Fed will cut its policy rate only once more in 2026.
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