As we unpack the implications of the recent developments pertaining to the Middle East, AI, and interest rates, the contours of the global economy could slightly shift over the coming months. Indeed, our base case for the U.S. economy over the next 12 months is one of “overheating” with a 50% probability, up from our mid-year probability of 40%. Our base case is supported by stronger-than-expected domestic demand, resilient consumers, continued AI-related capital spending, supportive fiscal policy, and relatively easy financial conditions. It also consists of three 25 bps rate hikes by the Fed through the end of the year—we expect one of those hikes to emerge this week—followed by an extended pause. However, the risk is toward additional hikes, not fewer.