BOK: "U.S. Economy to Grow at 2% Thanks to AI Investment"... Hopes for Rate Cut Disappear

Capital Expenditures Led by U.S. Big Tech
AI Sector Drives 1 Percentage Point Growth in Q1-Q3
Key Risks: Middle East Conflict and Rising Inflation

An analysis has emerged suggesting that the U.S. economy will maintain a growth rate in the low 2% range in the second half of this year, driven by investments in artificial intelligence (AI), despite the high oil price shock resulting from the war with Iran.On the other hand, inflation is expected to remain elevated, and market expectations for a rate cut within the year have effectively vanished.

The Bank of Korea's New York Branch predicted that the U.S. economy will maintain a growth rate in the low 2% range in the second half of 2026, on June 29, 2026 (local time). New York, USA - Special Correspondent Yoonju Hwang

The Bank of Korea's New York Office stated this on June 29 (local time) in its report titled "U.S. Economic Outlook and Key Issues for the Second Half of 2026."

According to the report, major institutions and investment banks generally projected the U.S. economic growth rate for this year to be in the low 2% range. While consumption is expected to recover slowly due to a decline in real purchasing power caused by rising prices, investments in AI data centers and power infrastructure are analyzed to be supporting corporate investment and driving growth.

Currently, there are 4,378 operational data centers in the United States, accounting for 37.5% of the world's data centers, and around 2,700 new data centers are either under construction or planned.

Led by large technology companies, capital expenditures in AI-related sectors are estimated to have boosted growth by about 1 percentage point during the first to third quarters of last year. During this period, AI contributed approximately 39% of economic growth, acting as a key growth driver, according to the report.

The report forecasts that AI investment will continue to increase significantly for a considerable period, primarily centered on data centers. This is attributed to the explosive growth in computing demand due to the spread of agent-based AI, as well as factors such as the rising costs of building AI infrastructure, including expensive specialized equipment, expansion of power facilities, and a shortage of skilled personnel.

Um Taekyun, Manager at the Bank of Korea's New York Office, explained, "In the second half of this year, the U.S. economy is expected to maintain solid growth, supported by continued expansion of AI-related investments, despite the delayed recovery in consumption caused by high oil prices and other factors."

Inflation Expected to Exceed Fed Target... Hopes for Rate Cuts This Year Have Faded

The Bank of Korea's New York Office expects inflation in the second half of the year to significantly exceed the Fed's target of 2%. The report projects that, based on WTI, oil prices will remain elevated in the second half, at $78.7 per barrel in the third quarter and $72.5 per barrel in the fourth quarter, compared to $60.3 in January before the Iran war.

While it is still difficult to say that rising oil prices have been fully passed on to overall service prices, the report explains that even if the Iran conflict ends, it will be hard for oil prices to quickly return to pre-war levels due to factors such as restocking of reserves, rebuilding of supply chains, and the cost of navigating the Strait of Hormuz.

Investment banks forecast inflation in 2026 at 3.6% based on core PCE, with oil supply shocks and price increases for semiconductors, electricity, and raw materials due to AI data center investment cited as upward pressures on inflation.

AI investment has also been identified as a factor simultaneously stimulating both growth and inflation. Investments in data centers and power infrastructure are serving as core growth drivers for the U.S. economy, but they are also increasing demand for semiconductors, raw materials, and electricity, thereby adding to inflationary pressures. At the briefing, it was pointed out that the rapid increase in corporate bond issuance to finance AI infrastructure investments has expanded capital demand, which could put upward pressure on market interest rates.

Accordingly, the outlook for the U.S. monetary policy path has also been revised. According to the Bank of Korea's New York Office, 9 out of the top 10 investment banks have withdrawn their forecasts for a rate cut within this year. Seven institutions—including JPMorgan, Barclays, Wells Fargo, Nomura, and TD—expect rates to remain on hold. BofA and Deutsche Bank forecast a rate hike. The report from the Bank of Korea's New York Office concluded, "Expectations for a rate cut within this year have effectively disappeared, and the majority of investment banks consider this rate cut cycle to be over."

The Bank of Korea's New York Office also analyzed that the scale of corporate bond issuance is rapidly increasing as capital expenditures related to AI expand. At the briefing, it was explained, "By May of this year, the amount of bond issuance related to AI investment had already surpassed the total annual issuance of last year," and "If this trend continues, rising capital demand could lead to higher market interest rates."

This content was produced with the assistance of AI translation services.