AI is keeping the US economy out of a recession

Economic Resilience and AI Impact - The US economy has avoided a recession for two years, attributed largely to the influence of artificial intelligence (AI) [1][2] - AI-driven investments have countered the negative effects of higher interest rates, leading to increased spending in data centers and chips, contributing 1.3 percentage points to Q2 GDP growth [1][4] Business Confidence and Spending - Rising stock prices have boosted high-end consumer spending, while increased business confidence has led to continued hiring and investment [2] - The AI boom has fostered a belief in a forthcoming robust economic expansion and productivity surge among businesses [2] Federal Reserve Policy and Economic Dynamics - The strength of the economy has allowed the Federal Reserve to consider easing monetary policy despite inflation remaining above target, described as "buying insurance for the labor market" [3] - AI's productivity gains have made the trade-off between inflation and labor market stability more manageable [3] Monetary Policy Transmission Mechanism - The AI boom has altered the traditional transmission mechanism of monetary policy, where higher rates typically reduce corporate spending [4] - Current investments in AI infrastructure are being financed through rising equity valuations rather than debt, preventing the usual cooling effect of tighter monetary policy [4] Sector-Specific Trends - Office construction has significantly declined since the Fed began raising rates in 2022, while data center projects have surged, highlighting a K-shaped economic recovery [4][6] - Broader financial conditions, rather than just the federal funds rate, are influencing capital expenditure decisions [6]