AI spending to support 2.8% US growth, two Fed rate cuts likely in 2026: BofA economist

The US economy is on track to grow a strong 2.8% this year, driven by artificial intelligence (AI) investment and easier fiscal and monetary policy, even as the Federal Reserve is still expected to deliver two interest-rate cuts, according to Aditya Bhave, Senior US Economist at BofA Global Research.Bhave said AI spending is already feeding directly into growth and consumer demand.

Explaining how AI is lifting activity and markets, he said, “AI definitely has been a big driver of gross domestic product (GDP) growth, both in terms of AI-related capex and its impact on the equity market, which has supported spending by higher income households.”
He added that easier government and central bank policies will further support the economy this year.

Outlining the policy tailwinds, Bhave said, “We think that will be driven by fiscal policy that’s turning a lot easier… Beyond that, monetary policy will also be easier.”

Despite the solid growth outlook, BofA still expects rate cuts in 2026, largely due to changes at the top of the US central bank.

Explaining why easing is still in the forecast, Bhave said, “We are not convinced that the economy at this point needs any additional rate cuts… That said, you’re going to have a new Fed chair that will be pushing for meaningful rate cuts.”

Also Read: TCS, Infosys, Wipro shares slide as AI fears drag Nifty IT down over 5%
He added that the house view remains limited and uncertain, saying, “With low conviction, you’re going to get two rate cuts, probably in the summer, maybe a little bit later this year.”For the US dollar, Bhave said the expected policy path is already reflected in market pricing.

On the currency impact, he said, “What we’re forecasting in terms of rate cuts is actually quite close to what the markets are pricing.”

Bhave also said the recent strength in gold reflects rising concern over the long-term value of major currencies.

Also Read: Investors will have to wait a bit longer for any Fed rate cuts this year

Describing the underlying driver of the gold rally, he said, “What we’ve seen in the last several months is probably a broad-based growing concern about fiat currencies in the context of elevated deficits across developed markets.”

While the broader economic outlook remains positive, Bhave cautioned that the scope for equity market gains appears limited.

Summing up the equity view, he said, “The upside that we’re expecting in the economy this year was essentially already priced in last year.”

For the entire interview, watch the accompanying video

Catch all the latest updates from the stock market here