A Season of Moderation in the Year of Boom and Doom

The U.S. economy is shifting from a period of robust growth and rising inflation to a more moderate outlook. While Q3 saw a strong GDP surge, driven by AI spending and tax refunds, expect growth to decelerate to around 2.4% in Q4 and below 2.0% in 2027. Consumer spending will slow as temporary boosts fade, though AI-related investment should remain strong.

Labor market gains are also moderating, with job and wage growth lagging behind historical trends due to demographic shifts and a less labor-intensive economic structure. Inflation, after a temporary energy price spike, is expected to cool significantly by mid-2027, falling towards the Fed's 2% target. Corporate profit growth will also slow from this year's highs due to moderating revenue and rising costs.

The Federal Reserve is likely to raise rates once more in December, but then hold steady through 2027, a more dovish path than markets anticipate. Investors should focus on diversification as the era of moderate growth and returns continues, navigating risks from political division and geopolitical events.