Fed May Not Be Done Hiking, Says OECD — Projects Rates Staying Elevated Through 2027 As Inflation Persists

• The OECD now sees U.S. GDP growing 2.2% in 2026 and 2.1% in 2027, upgrades of 0.2 and 0.3 percentage points from June.
• It projects one more Fed hike in Q4, followed by a 4%-4.25% federal funds rate range through 2027.
• AI investment is supporting U.S. growth, while higher energy costs, tariffs and weaker household purchasing power remain key pressures.

The Organization for Economic Co-operation and Development (OECD) expects the Federal Reserve to raise interest rates once more before the end of 2026, even as it upgraded its outlook for U.S. economic growth, highlighting the unusual combination of resilient activity and lingering inflation pressure facing policymakers.

In its September Interim Economic Outlook, the OECD projected one additional Fed rate increase in the fourth quarter (Q4), after which it expects the federal funds target range to remain at 4% to 4.25% through 2027. The projection reflects what the OECD called “continued inflationary pressures and solid projected GDP growth.”

The call is notable because the OECD simultaneously became more optimistic about U.S. growth. It now forecasts GDP growth of 2.2% in 2026 and 2.1% in 2027, up 0.2 and 0.3 percentage points, respectively, from its June outlook.

AI Investment Is Helping Keep U.S. Growth Afloat

Several forces are pulling the U.S. economy in opposite directions, according to the OECD.

On the positive side, it sees “strong underlying momentum” and further expansion in AI investment supporting activity. Investment in data-center structures and technology equipment already helped boost U.S. second-quarter (Q2) growth, alongside similar trends in Canada and Australia.

But households face growing pressure. The OECD expects U.S. consumers to pull back as purchasing power erodes, labor-force growth slows and household savings run down further. Those headwinds are why growth is projected to remain close to 2% rather than accelerate further.

The report also said robust AI-related spending and production is supporting growth across many G20 economies, in some cases outweighing relatively weak investment elsewhere in the business sector.

Energy Shock Keeps Inflation Pressure Alive

The inflation side of the equation remains harder to predict. U.S. headline inflation is projected at 3.6% in 2026 before easing to 2.6% in 2027, with the 2027 forecast raised by 0.5 percentage point from the OECD's June outlook.

U.S. businesses are facing pressure from both tariffs and higher energy-product prices. Core inflation is expected to decline more gradually, with U.S. core inflation projected at 3.3% in 2026 and 2.5% in 2027, it noted.

Higher crude prices are already feeding through to consumers. The report said credit-card data from the U.S., Germany and the U.K. show households devoting a larger portion of spending to fuel as gasoline and diesel prices rise, reflecting both higher crude costs and wider refinery margins.

The OECD's baseline assumes Brent crude averages $105 a barrel in the fourth quarter of 2026, then falls to around $85 in 2027. That decline is an important part of its expectation that inflation eventually moderates.

However, it cautioned that shipping through the Strait of Hormuz remains at very low levels, while further disruption there or in the Bab al-Mandab Strait could drive another sustained increase in energy prices.

Another Fed Hike Would Fit A Broader Tightening Trend

The OECD's Fed projection comes as central banks globally respond to the renewed energy shock. Around one-third of the 37 central banks tracked by the OECD have raised policy rates since March, while several that had previously been cutting rates have paused. The U.S., euro area, Australia, Indonesia, Japan, Korea and South Africa are among the G20 economies that have raised rates since March.

Energy and food-driven inflation can generally be looked through as long as inflation expectations stay well anchored, but the OECD said further policy adjustments will be needed if price pressures broaden or growth slows significantly.

The OECD's outlook therefore paints a relatively unusual picture for the U.S.: growth has been revised higher rather than lower, supported in part by AI investment, yet inflation remains sticky enough that the organization still expects monetary policy to tighten further.

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