Higher oil prices will result in slightly softer consumption in the near term than we previously expected, but we doubt recent events will derail the AI buildout. Thanks to strong AI-related investment, we expect GDP growth to average 2.4% this year and 2.5% in 2027. 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 would still 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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