AI bubble a "key downside risk" to U.S. economy, OECD warns (www.axios.com)

The Organisation for Economic Co-operation and Development (OECD) released a concerning economic forecast for the U.S., predicting a slowdown in growth alongside rising inflation rates in the coming year. A significant factor in this outlook is the potential for a correction in equity markets, which have been heavily influenced by optimism surrounding AI investments. The OECD cautioned that the current AI-driven stock market bubble poses a "key downside risk," which could exacerbate economic challenges if it were to burst. The OECD's projections indicate that U.S. economic growth will decrease from 2% this year to 1.7% by 2026, with only a modest recovery to 1.9% expected by 2027. Factors contributing to this decline include a weakening labor market and tariff-related price pressures. Moreover, the report highlights the broader global implications, noting that political uncertainty and trade issues may similarly hinder progress worldwide. As markets grapple with higher inflation and uncertainty surrounding AI returns, the OECD warns that financial instability could arise, particularly with overvalued assets likely to see forced sales from leveraged entities.