The Federal Reserve's anticipated rate cuts are not merely a response to cooling inflation but a deliberate 'insurance' policy against a weak labor market. This strategy comes at the explicit cost of inflation remaining above the 2% target for a longer period, revealing a clear policy trade-off prioritizing employment over price stability.
While gross spending on AI appears to be a major growth driver, its net contribution to the US economy is significantly smaller. A large portion of AI-related hardware and software is imported, meaning the immediate GDP impact is diluted. AI's more substantial economic benefit is expected to manifest through longer-term productivity gains.
The US labor market is stuck in a 'low hire, low fire' mode, preventing a more robust recovery. This stagnation is not from a lack of demand but is directly attributed to the combined effects of restrictive immigration controls and the lingering impact of tariffs, which suppress hiring activity and consumer purchasing power.