Economists raised their forecasts for third-quarter economic growth, reflecting upward adjustments to consumer spending and private investment, including capital outlays on artificial intelligence.

Gross domestic product is now expected to expand at a 2.5% annualized rate in the third quarter, up from 2% in the previous survey, according to the latest Bloomberg News monthly survey of economists. Quarterly GDP projections through the end of 2027 were little changed and confined to a narrow 2%-2.2% range.

Economists also made few adjustments to their inflation projections through next year. The personal consumption expenditures price index, excluding food and energy, is expected to average 3.2% this year before cooling to an average 2.5% in 2027 on an annual basis.

With the so-called core PCE price metric showing moderating inflation, economists expect the Federal Reserve will keep interest rates unchanged through July of next year.

“Tech/AI related investment is the main factor driving higher business capex, while high-income household spending is responsible for the majority of consumer spending growth,” said James Knightley, chief international economist at ING.

According to Bloomberg Industry analysts, total capital expenditures related to artificial intelligence may exceed $1 trillion this year and $1.5 trillion in 2027.

In addition, “cooler jobs and inflation data and a sense new Fed Chair Kevin Warsh was less inclined to raise rates has seen pricing become less aggressive, with a September hike now seen as less than a 50% call,” Knightley said.

An escalation in the Iran war poses a risk to the outlook by threatening to push oil and consumer prices higher while potentially weighing on growth. With inflation above the Fed’s 2% target, an extended supply shock would make policymakers’ job harder.

Economists also trimmed their estimates for average payroll growth this year to 66,000 a month and see similar monthly job growth in 2027. The Bloomberg survey of as many as 85 economists was conducted Aug. 14-19.

Fanzeres and Morgan write for Bloomberg.