BNP Paribas attributes US growth outperformance since 2022 to stronger productivity rather than near-term gains from Artificial Intelligence, after the economy stayed resilient through inflation, monetary tightening and tariffs. The bank expects the momentum to extend into 2026 and 2027, with productivity improvements remaining the main engine of expansion.
After a temporary pandemic-related “bump” and subsequent correction, hourly labour productivity grew at an annual average rate of 2.4% from 2023 to 2025, versus 1.3% over 2014 to 2019. In the medium term, AI is expected to reinforce the upward productivity trend, and expectations of AI-linked efficiency gains are described as supporting the current investment cycle. The report says US institutions view AI as a moderate, supportive factor for long-term GDP growth.
Productivity Gains, Durable Expansion, and Fed Outlook
We see the ongoing strength in the US economy as being rooted in tangible productivity gains, not just AI speculation. This view is supported by the latest Bureau of Labor Statistics report for Q1 2026, which showed nonfarm productivity at an annualized rate of 2.1%, reinforcing this trend of sustained improvement. This underlying economic health suggests the expansion is more durable than many believe.
This stable growth outlook should keep the Federal Reserve in a patient posture for the coming months. CME FedWatch data now suggests a less than 10% probability of any rate adjustments before the fourth quarter, creating a predictable interest rate environment. For traders, this stability reduces the risk of sudden policy shocks, making it a good time to consider strategies that benefit from lower interest rate volatility.
Market Strategy, Sector Rotation, and Strong Dollar Prospects
Given this backdrop, we should position for continued, steady upside in US equities rather than a speculative blow-off top. While tech remains strong, broad-based productivity gains favour sectors like industrials and consumer discretionary that have lagged. We can use call options on sector ETFs like XLI to gain exposure to this wider economic expansion, which is supported by corporate earnings growth keeping pace with market valuations.
The environment of steady growth and a patient Fed points towards continued low market volatility. The VIX index has been trading in a subdued range between 13 and 16, and we expect this to persist through the summer. This makes selling options premium an attractive strategy, such as writing covered calls or cash-secured puts on solid, large-cap stocks.
Historically, this situation echoes the late 1990s, where a productivity boom allowed for strong growth without runaway inflation, fuelling a multi-year bull market. However, unlike the dot-com era, current gains appear more distributed across the economy. We should therefore favour positions on broad market indices like the S&P 500 over concentrating solely in high-flying tech names.
This outperformance relative to other global economies will likely keep the US dollar strong. The dollar index (DXY) has been in a firm uptrend, recently breaking above 107. We should consider using futures or options to maintain a long dollar position, particularly against currencies whose central banks are in a more aggressive easing cycle.
