AI Computing Spending and High-Income Consumption Serve as "Dual Engines," Economists Raise U.S. Q3 GDP Forecast to 2.5%

U.S. economic growth expectations are receiving multiple supports. The latest monthly Bloomberg survey of economists shows that, driven jointly by artificial intelligence-related investments and rising consumption among high-income groups, surveyed economists collectively raised their forecasts for U.S. third-quarter GDP growth. Coupled with gradually cooling inflation, expectations for Federal Reserve rate hikes within the year have also diminished.

According to the monthly Bloomberg survey of economists, respondents raised their forecast for the U.S. third-quarter GDP annualized quarter-on-quarter growth rate from the previous 2% to 2.5%. James Knightley, Chief International Economist at ING, pointed out that technology and AI-related investments are the main drivers behind the strength in corporate capital expenditure, while consumption by high-income households contributes the majority of the momentum on the consumption side.

Marginal improvements in inflation data are also reshaping interest rate expectations. Surveyed economists currently expect the Federal Reserve to keep interest rates unchanged until July of next year. With new Fed Chair Walsh perceived as having limited inclination to raise rates, market pricing for a September rate hike has dropped below 50%. Meanwhile, the escalation of conflict in Iran constitutes a major downside risk; if oil prices and consumer prices are pushed higher, it would place policymakers in a dilemma.

Wave of AI Capital Expenditure Bolsters Business Investment

Artificial intelligence is becoming the core engine of the current expansion in U.S. business capital expenditure. According to estimates by Bloomberg industry analysts, global AI-related capital expenditure this year could exceed $1 trillion and is expected to climb further to $1.5 trillion by 2027.

James Knightley lists technology and AI-related investments as the "primary factor" in this round of increased corporate capital expenditure. This trend is already reflected in macroeconomic forecasts—while economists have raised their third-quarter GDP growth forecasts, they have also incorporated the outlook for private investment as a key supporting variable.

However, the boost to overall growth from AI investment has not fully permeated forecasts for all quarters. The Bloomberg survey indicates that changes to GDP growth forecasts for each quarter through the end of 2027 are limited, with expectations remaining in a narrow range of 2% to 2.2%, suggesting that economists hold a relatively cautious view on medium-term growth prospects.

High-Income Consumption Supports Half of Demand-Side Growth

Support on the consumption side also shows distinct structural characteristics. James Knightley noted that consumption by high-income households is the primary source of current consumer spending growth, which implies that the foundation for overall consumption recovery is uneven, with relatively limited contribution from low-income groups.

At the same time, the labor market continues to cool. This survey shows that economists have lowered their forecast for average monthly non-farm payroll additions this year to 66,000, and expect monthly employment growth in 2027 to remain at a similar level. The slowdown in employment growth somewhat corroborates the structural assessment that consumption momentum is concentrating among high-income groups.

Inflation Cooling Begins, Rate Hike Expectations Recede

The trajectory of inflation is another important theme in this forecast adjustment. Surveyed economists expect the core PCE price index, excluding food and energy, to average 3.2% this year and gradually decline to an annual average of 2.5% by 2027. Although core inflation remains above the Federal Reserve's 2% policy target, a downward trend has been initially established.

In this context, economists generally expect the Federal Reserve to remain on hold, with expectations for unchanged interest rates extending to July of next year. James Knightley added that with both employment and inflation data cooling, and given the market's conservative prediction regarding new Chair Walsh's willingness to raise rates, market pricing for a September rate hike has fallen below 50%.

Conflict in Iran Poses Greatest External Risk

Although the baseline forecast is trending optimistic, the escalation of conflict in Iran is explicitly listed as the primary downside risk to the current U.S. economic outlook. If the conflict continues to expand, it could push up oil and consumer prices, thereby dragging on economic growth.

With inflation yet to return to the policy target, the persistence of external supply shocks will further constrain the Federal Reserve's policy options—making it difficult to tolerate a rebound in inflation while facing constraints from pressure on growth. While economists' surveys remain relatively optimistic about the baseline scenario, the evolution of this geopolitical variable warrants close monitoring.

This Bloomberg survey was conducted from August 14 to 19, with participation from as many as 85 economists.