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.

The flip side of more rapid U.S. growth is higher long-term interest rates — and homebuyers are particularly poised to take it on the chin.

Driving the news: The average rate on a 30-year fixed-rate mortgage surged to 7.12% last week, the Mortgage Bankers Association said today, up from 6.97% the prior week and the highest since May 2024.

• The bond market selloff that has pushed mortgage rates higher shows no signs of relenting.
• The 10-year U.S. Treasury yield, to which mortgage rates are tied, is up 0.12 percentage points this morning to 5.08%, which would be a new 19-year high if it holds until the market close.
• It comes a week after the Federal Reserve raised interest rates amid growing bets that it will need to keep pushing rates higher to contain inflation.

State of play: Fed governor Michael Barr spoke on housing this morning, and said that he sees more rate increases as likely to be justified to bring inflation under control.

• "We needed to recalibrate monetary policy to reflect the balance of risks to our mandate goals," Barr said at an affordable housing conference in Chicago.
• "In my view, given changes to the economy, we were out of position, and we made an adjustment in the right direction. In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion."

Of note: Barr discussed the root causes for housing affordability, and he mostly zeroed in on supply-side factors like local zoning restrictions and the dearth of productivity gains in construction.

• As for the role of the Fed in pushing mortgage rates upward, he said that the central bank's "short-term policy rates affect longer-term borrowing rates, including those for mortgages, but many other things affect mortgage rates as well."
• "Mortgage rates are generally lower when inflation is lower, and we are working toward that goal."