The engines powering U.S. economic growth have become increasingly “narrow,” with significant portions of national output now described as “weak or contracting,” according to analysts at UBS.
In a research note, UBS analysts including Jonathan Pingle and Alan Detmeister said the outlook for the U.S. economy through 2028 is heavily dependent on continued investment in artificial intelligence. Spending in this area has surged amid excitement over emerging AI applications.
However, the analysts cautioned that AI investment remains highly concentrated among mega-cap technology firms, which are now under growing pressure from investors to demonstrate tangible returns on that spending.
They added that broader equity market performance has also relied disproportionately on consumption by higher-income households, reinforcing the view that the U.S. economy is becoming increasingly “K-shaped.”
Under this dynamic, post-pandemic growth is being driven primarily by wealthier consumers and large corporations, while lower-income households continue to struggle with elevated living costs. UBS also noted that President Donald Trump’s sweeping tariff measures have created additional headwinds for real incomes.
Despite these structural challenges, recent data suggest the U.S. economy has remained broadly resilient. The labor market continues to show limited hiring but relatively low levels of layoffs, while inflation has stabilized, even as it remains above the Federal Reserve’s 2% target.
UBS also pointed to Trump’s flagship budget legislation passed last year, which it expects to “put a floor” under economic expansion. The analysts said the bill is likely to drive a rise in tax refunds, offering near-term support to growth.
In this context, the Federal Reserve — which cut interest rates several times last year to shore up employment — is expected to keep rates unchanged at its policy meeting this week.
Looking further ahead, UBS forecasts that the central bank will ultimately deliver two rate cuts in 2026, lowering the federal funds target range to between 3% and 3.25%.