Growth will slow and inflation will rise in the U.S. next year, the Organisation for Economic Co-operation and Development forecast Tuesday, as the labor market weakens and tariff price pressures remain.
The big picture: The pessimistic forecast has an even gloomier caveat: Things could get worse if the AI-driven stock market bubble were to burst.
What they're saying: "A key downside risk to the projection is a correction to equity markets that have been buoyed by the hopes of high returns to investment in AI, although new advances in AI could boost growth in the years ahead," the OECD wrote in its semiannual projection.
By the numbers: The group projects the U.S. economy will grow 2% this year, falling to 1.7% in 2026 and then rising back to 1.9% in 2027.
- It cited weakening employment growth and the price impact of tariffs, and said more interest rate cutting "appears warranted," even with expected inflation rising to 3% next year from 2.7% this year.
Zoom out: Globally, the OECD expects lower growth in 2026, as trade effects and political uncertainty weigh on activity.
- But slowing inflation and growing demand in Asia should perk growth back up in 2027, the advisory group of 38 member countries projected.
What to watch: The risks to financial markets in the current economic environment are broad and significant, per the forecast.
- "Weaker-than-expected growth, lower-than-expected returns from net AI investment, or upside inflation surprises could all trigger widespread risk repricing given stretched asset valuations and optimism about corporate earnings, and be amplified by forced asset sales by highly leveraged non-bank financial intermediaries," the group said.
Editor's note: This story has been updated with background from the OECD report.
