UBS economists argue that the U.S. economy is positioned for a step up in structural growth this year, yet they stress that this improvement is supported by a narrow set of drivers rather than broad-based strength.
In a note published Tuesday, UBS economist Jonathan Pingle said, "despite the headline resilience, sources of growth are narrow. The outlook is heavily reliant on AI." He added that "investment is concentrated in tech, and the stock market’s boost to upper-income household spending," and warned that "the entire rest of the economy looks weak or is in contraction."
The bank identifies AI-related investment and equity gains as the primary engines of the current expansion. UBS cautions that if that investment surge or the stock market's support for spending among higher-income households were to fade, "the expansion itself would be at risk," Pingle said.
UBS also notes several ongoing pressures that could weigh on real incomes and broader activity. Rising energy prices and continuing tariff headwinds are singled out as risks that could blunt income growth. At the same time, the bank expects that some relief will come from fiscal and monetary policy measures, citing provisions such as the One Big Beautiful Bill Act (OBBBA) and prospective interest rate reductions.
On policy, UBS projects two interest-rate cuts in 2026, which would leave the Fed funds target range at 3.00%-3.25% by the end of that year, though the firm acknowledges that risks are skewed toward only one cut. The bank added that "The FOMC is in a tough spot with PCE inflation near 3%. A new Board Chair adds uncertainty," underlining the policy dilemmas facing the Federal Reserve.
Despite those policy uncertainties and external pressures, UBS expressed a longer-term optimistic view. The bank said it is "bullish longer term and estimate that we are on the cusp of an acceleration in structural growth." It also cautioned that the expansion is likely to pass through an adjustment phase before any acceleration becomes broadly evident. UBS posed a pointed question about the environment for that transition: whether the trade war, policy uncertainty and volatility will "get out of the way?"
Summary - UBS forecasts a potential pickup in U.S. structural growth driven mainly by AI investment and stock-market-fueled spending, but warns that the recovery is narrowly based and exposed to energy, trade and policy risks.
Key points
- Growth is concentrated in tech investment and stock-market boosts to upper-income household spending, limiting broad economic momentum.
- UBS expects two 2026 rate cuts to bring the Fed funds range to 3.00%-3.25% by year-end, with downside risks skewed toward fewer cuts.
- Sectors most directly impacted include technology and equities, with energy and trade-sensitive industries vulnerable to rising costs and tariffs.
Risks and uncertainties
- Rising energy prices could erode real incomes and weigh on consumption, particularly outside high-income households.
- Ongoing tariff headwinds pose a drag on trade-exposed sectors and could contribute to economic weakness in parts of the economy.
- Monetary policy dilemmas - with PCE inflation near 3% and uncertainty around a new Board Chair - complicate the Federal Reserve's path and may limit the timing or number of rate cuts.