AI’s economic growth effects

Artificial intelligence is showing signs that it could reshape the global economy. According to Vanguard Global Chief Economist Joe Davis, AI investment may lead to stronger-than-expected growth in the U.S. and other leading economies. This could stabilize labor markets and even result in fewer interest rate cuts by the Federal Reserve than many anticipate.

While technology stocks have dominated in recent years, history suggests that market leadership shifts over time. As AI’s benefits spread, value stocks and non-U.S. equities offer among the strongest risk-return profiles. Meanwhile, fixed income remains compelling, providing income above inflation and a defensive posture amid AI exuberance.

Watch this short video to learn why diversification matters even as stock prices charge higher.

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Joe Davis: In 2026, AI investment is likely to accelerate and continue to transform the global economy.

That sort of investment in businesses and companies has the prospect to have slightly higher than expected economic growth in the United States and some other leading markets.

This should stabilize the labor market and could even lead to somewhat fewer than expected interest rate cuts from the Federal Reserve.

Our outlook for the financial markets is also generally constructive, but with one important nuance.

AI-related stocks, particularly United States, have done astoundingly well over the past several years.

But our study and analysis of financial market history reveals one compelling thesis.

And that is, over time, areas outside of the technology field will start to outperform more strongly as they benefit from the technology itself.

So areas such as value stocks in the United States and investments outside of the United States should increasingly offer attractive returns.

And then finally, areas such as fixed income, which provide not only higher income expected as interest rates should remain above the rate of inflation but also provide just a modest defensive posture should this sort of exuberance continue to the sky.

For more details, read our 2026 economic and market outlook.

_Notes:

_{All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.}

_{Investments in bonds are subject to interest rate, credit, and inflation risk.}

_{Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.}

AI’s economic growth effects

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