U.S. economy remains resilient amid global challenges and rate hikes ahead

Despite global challenges like ongoing wars and trade tensions, the U.S. economy is expected to remain resilient, according to Harvard University economics professor Karen Dynan. Speaking at the Peterson Institute for International Economics’ semiannual event, Dynan noted that global growth is holding up, with a projected slowdown from 3.5% in 2025 to 3.2% this year and 3.1% in 2027. For advanced economies like the U.S., she predicted 'solid' growth, partly driven by the rapid expansion of artificial intelligence (AI). U.S. GDP grew 2.3% in 2025, and Dynan expects similar growth this year before a slight dip to 2.2% in 2027.

Dynan anticipates energy prices will ease, the Federal Reserve will raise rates further, and inflation will gradually decline. She forecasted three more quarter-point rate hikes, likely in December, January, and February, citing the need for more definitive data before the October meeting. The Fed has kept rates steady under President Donald Trump’s second term but raised them in September to a range of 3.5% to 3.75%. Falling energy prices and Fed tightening are expected to reduce inflation, though core inflation may decline more slowly.

Dynan also highlighted the growing federal debt, which exceeds $40 trillion, and persistent annual deficits. While immediate action is unlikely due to the political environment, she noted that the risk of a fiscal crisis has increased with higher interest rates and rising federal debt.