UBS US Economic Report: 2026-2028 US Economic Outlook: Still Bumpy
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UBS argues that the US expansion now rests almost entirely on AI investment and its knock-on wealth effects. Over the past four quarters, AI/tech-related real equipment investment rose 20% while other equipment investment fell 2%; nonresidential structures and residential investment have contracted for two years. Equity wealth reached a record 38% of household net worth in the second quarter, making the expansion vulnerable to any wobble in AI spending or share prices. Inflation has been pushed off target by tariffs and an energy supply shock: core PCE is expected to peak at about 3.4% in the May data, at 3.1% in Q4/Q4 2026 and at roughly 2.4% in 2027, staying above target for five years. The Fed has already hiked once in September; UBS expects another hike in December and two in total for 2026, while new Chair Warsh's more hawkish reaction function leaves a wide, two-sided distribution of rate outcomes. Forecasts for 2026-2028: real GDP growth of 2.2%/1.9%/2.6%, unemployment of 4.2%/4.5%/4.4% and a fed funds rate of 4.1%/3.9%/3.4%. Potential growth rises from 1.8% to 2.6% by 2028 as AI productivity offsets ageing; AI was cited in 6% of announced layoffs in 2025. In a modelled AI-bubble-burst scenario, unemployment approaches 6%, inflation falls below 2.0% and rates return to the zero lower bound.
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