OECD: U.S. economy to grow faster than its allies

The U.S. economy is expected to grow much faster this year than any other major advanced economy as its domestic policies inflict pain across much of the world.

Why it matters: The global economy has proven surprisingly resilient to successive shocks. The U.S. stands out even against that backdrop, with the AI investment boom helping it grow much faster than other economies.

• But that exceptionalism comes at a cost: more persistent inflation and interest rates that may need to stay higher for longer to restrain it.

Driving the news: The Organisation for Economic Co-operation and Development (OECD) expects the U.S. economy to grow 2.2% this year, roughly twice the pace projected for the eurozone, Germany and the U.K. Growth is expected to be even weaker in Japan (0.8%) and in Canada (0.9%).

• That growth gap is expected to persist next year, when U.S. growth clocks in at 2.1%, compared with roughly 1% across much of the rest of the world's major advanced economies.

• The OECD has become more optimistic about the U.S. since June, lifting its growth estimate by 0.2 percentage points for 2026 and 0.3 points for 2027.
• That contrasts with downgrades to next year's outlook for the broader global economy, the eurozone, Canada, the U.K. and Japan.

What they're saying: "The major risk is still the evolution of the conflict in the Middle East and the impact on the energy market. But there are also a number of other risks — some of which seem to have gained some momentum from the June projection," OECD chief economist Stefano Scarpetta told reporters this morning.

• Scarpetta pointed to rising sovereign bond yields, risks surrounding the AI investment boom and the potential for extreme weather to push food prices higher.

Zoom in: The AI boom has given the U.S. economy a powerful shock absorber that many other economies lack, the OECD says.

• Rapid growth in AI investment and production has "partially counterbalanced" the economic hit from the Middle East conflict — with data center and technology spending directly boosting U.S. growth.

The other side: The inflation outlook looks more stubborn than a few months ago.

• The OECD expects U.S. headline inflation to fall from 3.6% this year to 2.6% next year — but that 2027 forecast is half a percentage point higher than it projected in June.
• U.S. core inflation is projected at 3.3% this year — among the highest rates across major advanced economies — and 2.5% next year.
• That persistence helps explain why the OECD expects another Federal Reserve rate hike this year, with rates then staying at 4%-4.25% through the end of 2027.

What to watch: The AI boom boosting U.S. growth is beginning to come with its own macroeconomic downside effects.

• Long-term borrowing costs are at their highest in at least 15 years across most major advanced economies, the OECD says.
• It warns that heavy borrowing by AI companies is helping push yields higher, potentially raising costs across the economy and leaving markets vulnerable if AI profits disappoint.

The bottom line: America has helped make the global economic environment tougher. Its own economy has so far weathered it better than almost any of its peers, but that resilience is coming alongside an inflation problem that remains difficult to shake.