The convergence of resilience and risk

By J. Brian Henderson, BOK Financial® Chief Investment Officer

If the third quarter demonstrated anything, it's the U.S. economy's ability to fly through headwinds like the conflict with Iran and move higher. The fourth quarter will test how much that resilience can continue amid further-increasing interest rates, still-high inflation and continued tension with Iran.

Based on current estimates, third-quarter economic growth far surpassed the growth seen in the first half of the year. The fuel behind that growth largely comes down to one factor: artificial intelligence (AI). At the start of 2026, estimates for AI-related capital expenditures in the U.S. were roughly $500 billion. Those estimates have since climbed to nearly $800 billion for 2026, with projections approaching $1 trillion in 2027.

That investment is both a powerful driver of growth and a growing source of risk, not only for the U.S. economy but for the global economy as well.

On one hand, it's unmistakable thar AI capex is boosting the U.S. economy and financial markets. The S&P 500 hit an all-time high on Aug. 13, despite the fact that historically financial markets face volatility leading up to an election. We've said time and time again that we expect capex on datacenters and AI to fuel U.S. and global growth in the years and decades ahead-and to be one of the factors that drives U.S. productivity amid a shrinking population of working-age individuals.

What happens if AI-driven capex starts to slow?

On the other hand, this concentration of growth on one factor has inherent vulnerabilities. What happens if AI-related spending begins to slow because of increased regulations on AI, restrictions on data center construction or concerns about return on investment?

Whether increased regulations or restrictions should happen are beyond the scope of this writing. However, the effects of slower-than-expected AI capex would extend beyond the United States. The AI buildout has become increasingly important to economic growth around the world, particularly in countries that play a critical role in the technology supply chain. For instance, the economies of Taiwan and South Korea are particularly exposed because of their importance in semiconductor manufacturing and other AI-related technologies. This means that a slowdown in AI investment would not only affect technology companies and financial markets, but could also ripple through global trade, manufacturing and economic growth.

For these reasons, the answer to what's ahead for the U.S. and global economy lies partly in the results of the U.S. midterm elections. Which party takes the majority of the House and Senate may have real implications for the technology industry and the ripple effects described above, as well as the degree and focus of government spending, although this spending is likely to grow whichever party wins.

How will businesses and consumers react to higher rates?

As the U.S. government is one of the biggest borrowers of money, this brings us to the Federal Reserve. It's no longer a question of when the Fed will cut rates, as it was going into 2026.  That rate cut never happened. Instead, the Fed made the decision to raise rates in September due to still-high inflation. Additionally, there's still one more rate hike expected this year, with two more likely on tap for 2027.

So, the question now is when this next rate hike of the year will happen. Although Fed Chair Warsh has expressively communicated the Fed's commitment to lowering inflation, he also has not conveyed any sentiment that the Fed is behind the curve, either.  This means that, barring unforeseen circumstances such as a major uptick in inflation, the Fed does not have to hurry to hike rates again in October. Instead, due to the meeting's close proximity to the November midterm elections and the Fed's desire to stay politically neutral, it's likely that the Fed will wait until December for the next and last rate hike of the year.

While the broader economy has remained resilient, the effects of higher rates are not being felt equally across all sectors. Interest-rate-sensitive areas of the economy like the housing market and automobile sales continue to face pressure even as other segments benefit from strong corporate and consumer spending.

Will we see more or less conflict with Iran?

Finally, the backdrop behind all this is the conflict with Iran, which is both a negative and positive wildcard in the fourth quarter. If there's increased U.S. military bombing in Iran and it disrupts oil supplies, that would negatively impact energy prices, inflation and the U.S. economy as a whole, especially as Strategic Petroleum Reserves (SPR) of crude are already low and the refineries have very little capacity. On the flip side, if there is a resolution with Iran, it would positively impact both equity and bond markets, but markets are not optimistic for that outcome right now.

Together, these questions about AI, the higher-rate environment and the Iran conflict likely will shape the fourth quarter and beyond. While we do not foresee a recession, it's also unlikely that economic growth will soar to the peaks seen in the third quarter. Look for a more sustainable flight route of around 2% growth instead.