The US economy has defied calls for a slowdown for two years — dodging a recession despite various tariff shocks, higher borrowing costs, and geopolitical turmoil. The reason why? Artificial intelligence.
BNP Paribas chief US economist James Egelhof put it bluntly in a roundtable with reporters this week: “AI has kept the economy out of a recession.”
AI-driven investment has offset the drag from higher rates, fueling a surge in data center and chip spending that’s kept growth humming. Bank of America Research estimates AI-related capex added 1.3 percentage points to second quarter GDP growth, while small business payments to tech services jumped nearly 7% year over year in September as adoption spreads beyond Big Tech.
Even outside the AI buildout, the ripple effects are clear: Soaring stock prices have fueled high-end spending, and a surge in business confidence has kept companies hiring and investing, rather than hitting the brakes.
“The AI boom has convinced the broader business community that a robust expansion and productivity surge lies just over the horizon,” Egelhof said.
That strength has given the Fed cover to start easing even with inflation above target — which Egelhof called “buying insurance for the labor market” at the cost of “somewhat suboptimal, inflationary outcomes.”
For now, AI’s productivity gains have made that trade-offeasier to stomach. But they’ve also reshaped aspects of the current financial system — temporarily, at least.
Apollo chief economist Torsten Sløk said the AI boom has “broken” the transmission mechanism for monetary policy. (Disclosure: Apollo is Yahoo’s parent company.)
Normally, higher rates choke off corporate spending, but AI infrastructure is being financed by soaring equity valuations, not debt. That means tighter policy hasn’t slowed investment, or cooled the economy, the way it normally would.
Goldman Sachs estimates that hyperscalers like Microsoft (MSFT), Meta (META), Alphabet (GOOG), and Amazon (AMZN) now account for more than a quarter of all S&P 500 capex, growing at a 75% annual clip.
And it will surprise no one that office construction has plunged since the Fed began raising rates in 2022, but data center projects have exploded, powered by equity gains in the “Magnificent Seven.” Another case of the K-shaped economy
As Sløk put it, “What matters for capex decisions are broader financial conditions and not just the fed funds rate.”
He added, “There is basically no growth in corporate capex outside of AI.”
BNP group chief economist Isabelle Mateos y Lago captured the mood at the IMF meetings earlier this month: “There was a palpable sense of AI optimism,” she said. “AI is saving the day.”
It’s also rewriting the rules.
