Vanguard – Megatrends AI, demographics and the U.S. economy

The U.S. economy in the next decade will be influenced by a competition between artificial intelligence (AI) and demographic deficits, determining whether economic growth will improve or slow down. The Vanguard Megatrends ModelTM analyzes the impact of long-term supply-side forces on the economy, focusing on real GDP growth, inflation, the federal funds rate, and stock market valuations. The most likely scenario is that AI boosts worker productivity, counteracting demographic challenges, but there is also a possibility of AI underperforming, leading to slower growth and fiscal strain. In either case, the federal funds rate is expected to stay above 4%, while inflation should remain stable. This study contradicts the belief that the next decade will mirror the previous one of sluggish growth, highlighting the potential for significant changes driven by AI and demographics.