National Bank of Canada’s Senior Economist Jocelyn Paquet asserts that a surge in AI-related investment is keeping U.S. GDP growth above its potential, with forecasts projecting 2.4% growth in 2026 and 2.0% in 2027 [1]. Paquet notes that hyperscalers are expected to spend up to $800 billion on AI by 2026, which is likely to accelerate sector growth and support household consumption, suggesting that the worst may be over for households and that consumption growth could pick up as the year progresses [1].
However, Paquet cautions that this robust growth, combined with a dovish Federal Reserve stance, risks delaying a return of inflation to the Fed's 2% target. In the first quarter, the core personal consumption expenditures (PCE) deflator rose at its fastest pace since Q1 2023, with an annualized increase of 4.3%, pushing the 12-month rate to a two-year high of 3.1% [1]. This resurgence in inflation, alongside rising energy prices in both spot and futures markets, has diminished the likelihood of policy rate cuts in 2024, as reflected in OIS markets [1].
Despite these inflationary pressures, Paquet believes monetary policy will continue to stimulate the economy, supporting above-potential GDP growth in the coming years. Nevertheless, this combination of strong growth and lenient monetary policy is expected to delay the return of inflation to target, especially if geopolitical tensions, such as the conflict in Iran, persist [1].
CONCLUSION
NBC's analysis suggests that AI-driven investment is sustaining U.S. economic growth but complicating the Federal Reserve's efforts to bring inflation back to its 2% target. Rising inflation and energy prices are making rate cuts less likely in the near term, with monetary policy expected to remain stimulative. The market takeaway is that investors should anticipate continued above-potential growth and delayed inflation normalization.