Economist Predicts Solid U.S. Growth but Warns of Fed Rate Hikes Ahead

Harvard economist Karen Dynan projected continued economic resilience despite global challenges, including wars and trade tensions, during a recent forum hosted by the Peterson Institute for International Economics. Speaking at the semiannual Global Economic Prospects event, Dynan anticipated solid growth for the U.S. economy, driven in part by the rapid expansion of artificial intelligence (AI). She forecasted global economic growth slowing to 3.2% this year and 3.1% in 2027, with U.S. GDP growth maintaining a steady pace of 2.3% in 2026 before dipping slightly to 2.2% in 2027.

Dynan expects energy prices to ease, aligning with the U.S. Energy Information Administration’s forecast of Brent crude averaging $84 per barrel next year. She also projected further interest rate hikes by the Federal Reserve, predicting three more quarter-point increases after the October meeting, likely in December, January, and February. The Fed’s tightening measures, combined with falling energy prices, are expected to gradually reduce inflation, though core inflation may decline more slowly.

Addressing fiscal concerns, Dynan highlighted the growing federal debt, which exceeds $40 trillion, and persistent annual deficits. She noted that political polarization and lack of congressional action increase the risk of a fiscal crisis. Other scholars at the forum discussed trade and immigration challenges, with Inu Manak emphasizing the importance of the United States-Mexico-Canada Agreement for U.S. trade policy, and Michael Clemens warning of potential economic costs from restrictions on high-skilled immigration.