Economists at UBS believe the U.S. economy may be approaching a period of stronger structural growth later this year. However, they warn that the current expansion remains narrow and is largely supported by artificial intelligence (AI) investment and strong stock market performance.
In a research note published Tuesday, UBS economist Jonathan Pingle said that while economic data appears resilient on the surface, the underlying drivers of growth are limited. According to Pingle, the outlook for the U.S. economy currently depends heavily on continued momentum in the artificial intelligence sector.
He explained that most investment activity is concentrated within the technology industry, while rising equity markets are primarily supporting spending among higher-income households. Outside these areas, much of the broader economy remains weak or is experiencing slower growth.
Economic risks remain elevated
UBS also highlighted several risks that could affect economic growth. Rising energy prices and ongoing tariff pressures could reduce real household income, potentially weighing on consumer spending.
At the same time, fiscal policies such as the One Big Beautiful Bill Act (OBBBA) and potential interest rate cuts from the Federal Reserve may help support economic activity in the coming years.
UBS currently expects the Federal Reserve to implement two interest rate cuts in 2026, which would bring the federal funds rate to a range of 3.00%–3.25% by the end of the year. However, the bank noted that the balance of risks suggests the Fed could deliver only one rate cut instead.
According to UBS, policymakers face a difficult environment as PCE inflation remains close to 3%, while uncertainty around the appointment of a new Federal Reserve Board chair adds further unpredictability to the outlook.
AI investment seen as critical growth driver
Pingle emphasized that maintaining strong investment in artificial intelligence will be crucial for sustaining economic expansion. He warned that if AI investment slows or equity markets lose momentum, the current economic expansion could be threatened.
UBS expects the economy to go through a transition period before entering a stronger growth phase. The bank remains optimistic about the long-term outlook, suggesting that the U.S. economy could soon experience a structural acceleration driven by technological innovation.
However, UBS analysts also point out that several uncertainties remain. The key question is whether factors such as trade tensions, policy uncertainty, and financial market volatility will ease enough to allow the next phase of growth to develop.
