The Federal Reserve closed 2025 by cutting rates by a quarter point for the third time this year. The decision was not unanimous: nine of the board members voted in favor while three voted against the rate cut. The decision was made as the US economy continues to reel from tariffs, mass deportations, cuts to government spending, and stalled hiring. To make matters worse, official price and labor market data remain murky since the government shutdown.
On the other hand, the US economy expanded at the fastest pace in two years, increasing 4.3 percent. This has produced a confusing picture of the real state of the economy. However, things become clearer when we take into consideration the fact that much of this growth is driven by spending in the AI sector.
On its face, the US economy appears pulled in two directions: on one side, severe inequality, inflation, slowed hiring, and high youth unemployment; on the other, a seemingly unstoppable tech sector, wealthy stockholders responsible for a disproportionate share of consumption, and expanding federal spending on defense and border enforcement technologies reliant on artificial intelligence.
In the words of a Brookings Institution economist, we have a “two-track economy.” The “AI gold rush generates excitement and papers over a drift in the rest of the economy.” According to the Budget Lab at Yale, investment in AI accounts may reach 2 percent of the United States’ gross domestic product (GDP) this year, or the equivalent of $1,800 per person. Analysts at Deutsche Bank have gone as far as to argue that the United States would be close to a recession this year if it weren’t for tech-related spending.
But the image of a two-track economy oversimplifies the reality. These two halves, which may initially seem distinct, exist within the same system of uneven capital accumulation, and they are held together by access to cheap credit. The “winning” or “growing” half relies on the extraction of rents…
Auteur: Sophie Bandarkar
