The OECD raises its global economic growth forecast, predicting that the Federal Reserve can cut interest rates three more times

The OECD raised its forecast for global economic growth in 2025 on Tuesday, citing the unexpectedly resilient performance of the global economy in the first half of this year, particularly in many emerging markets.

In its latest Economic Outlook report, the OECD upgraded its global economic growth forecast for this year from 2.9% to 3.2%. At the same time, the organization also raised its growth forecast for the United States in 2025 from 1.6% to 1.8%. However, the organization warned that the full impact of tariff increases has yet to be felt, and the economic outlook still faces "significant risks."

Despite the upward revision of growth expectations, the OECD maintained its forecast for global economic growth at 2.9% in 2026, indicating that the global economy will slow from a growth rate of 3.3% in 2024. Similarly, the U.S. economy is expected to significantly decelerate from a growth rate of 2.8% in 2024.

Although inflation remains above target, given the signs of a slowdown in the U.S. economy and labor market, the Federal Reserve still has room for three more rate cuts. The agency predicts that by next spring, the U.S. policy interest rate will be lowered to a range of 3.25% to 3.5%.

Emerging Markets and AI Investment Drive Growth

The OECD noted in the report that "in the first half of 2025, the resilience of the global economy exceeded expectations, especially in many emerging market economies."

The report analyzed that the growth momentum mainly comes from several aspects. First, in the trade sector, facing impending higher tariffs, companies adopted a strategy of advance shipping, which supported industrial production and trade activities. Second, the performance of the U.S. economy benefited from strong investment in the field of artificial intelligence. Additionally, proactive fiscal support measures in some countries effectively offset the negative impacts of trade frictions.

Despite optimistic short-term data, the OECD remains cautious about the outlook, emphasizing that "significant risks still exist in the economic outlook." The organization believes that high policy uncertainty and elevated tariffs will continue to impact investment and trade.

The OECD pointed out that "since May, the United States has raised bilateral tariff rates on almost all countries. As of the end of August, the overall effective tariff rate in the U.S. is estimated to have risen to 19.5%, the highest level since 1933."

The organization warned that the full effects of tariff increases have not yet been fully released, as many adjustments are being implemented in phases, and companies initially absorbed some costs by compressing profit margins. However, its impact is "increasingly evident in consumer choices, the labor market, and consumer prices."

Weak Labor Market Paves the Way for Further Rate Cuts

The OECD's report also showed that the labor market has shown signs of weakening, with rising unemployment rates and decreasing job vacancies in some countries. At the same time, the global anti-inflation process seems to have leveled off. OECD Chief Economist Álvaro Pereira stated in an interview:

"The performance of the labor market is not as strong as before. Considering the recent shift by the Federal Reserve, we expect there may be one more rate cut this year, and possibly two more in early next year." However, the prospect of interest rate cuts is not without obstacles. The OECD pointed out that the anti-inflation process in many countries has "flattened out," and in the United States, the impact of tariffs has begun to transmit to some consumer goods prices. The organization predicts that the inflation rate in the United States will be 2.7% this year, slightly higher than last year's 2.5%, and will reach 3% by 2026, remaining above the Federal Reserve's 2% target.

The organization forecasts that, despite inflation still being above target, given the signs of a slowdown in the U.S. economy and labor market, the Federal Reserve still has room for three more rate cuts. By next spring, the U.S. policy interest rate will be lowered to a range of 3.25% to 3.5%.

Looking ahead, the OECD has identified two key risks: further tariff increases and the resurgence of inflationary pressures. Additionally, the report mentions that "high and unstable valuations of crypto assets also pose financial stability risks, as their ties to the traditional financial system are increasingly strengthening."

On a positive note, the OECD pointed out that if trade restrictions are reduced or the development and application of artificial intelligence technology accelerate, it could provide upward momentum for economic growth prospects