“If you too like a good mystery, then you like the US economy.” Those were the recent words of Tom Barkin, the president of the Richmond Fed. For our part, we expect strong investment in Artificial Intelligence to continue, even with rising borrowing costs, says John Eade, president of Argus Research.
Barkin, who will be a voting member on the rotating Federal Open Market Committee (FOMC) in 2027, shared his “deductions” on four mysteries in the US economy. They were: remarkable resilience despite a slew of challenges, strong investment, the steady labor market, and stubborn inflation.
These happen to be themes in our forecast for GDP to grow 2.2% (up from 2.1%) in 2026 and 2.2% again in 2027. We expect consumer spending to grow about 2% in both years, which is a solid performance considering inflation, modest wage growth, and rising interest rates.
We are making a small reduction to our already cautious outlook for housing. As for AI, companies anticipate returns on their investments that are substantially higher than their cost of capital.
Finallly, with inflation the mystery (Barkin said) is not whether the Fed will get it back to 2%, but how. Do the FOMC members think the current level of interest rates is restrictive enough to bring inflation down to its target, or will they hike rates further? Time will tell.
