If energy prices gradually ease in the second half of this year, as in our baseline, GDP growth should average 2.1% this year and pick up to 2.3% next year. Higher gasoline prices will weigh on consumption, but stronger AI-driven investment should largely offset the drag. Inflation will stay above 3% for the rest of the year, keeping the Fed on hold. But if oil prices remain higher for longer, we think the Fed would be forced to enact at least one 25bp rate hike this year.
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