but the expansion remains narrowly focused and relies heavily on investment in artificial intelligence (AI) and stock market growth.

UBS economist Jonathan Pingle said in a note on Tuesday that "despite robust fundamentals, the sources of growth are narrow. The outlook is heavily dependent on AI."

"Investment is concentrated in the tech sector, as well as in the stock market-led stimulus for high-income household spending," he added. "The rest of the economy appears weak or contracting."

Rising energy prices and continued tariff pressure are seen as additional risks to real incomes, while fiscal measures such as the One Big Beautiful Bill Act (OBBBA) and lower interest rates are expected to provide some support.

UBS forecasts two rate cuts in 2026, bringing the Fed's target rate range to 3.00%–3.25% by year-end, although risks are skewed toward just one cut.

"The FOMC is in a challenging situation with PCE inflation near 3%. The new chairman adds uncertainty," the bank noted.

Pingle emphasized the importance of maintaining the FOMC's momentum, warning that if investment or equity support weakens, "the expansion itself will be at risk."

UBS expects the economy to go through a period of adjustment before accelerating, noting: "We are optimistic about the long-term outlook and assess that we are on the cusp of accelerating structural growth."

However, the bank emphasized that the key question is whether the trade war, political uncertainty, and volatility will fade.