U.S. Economy Shrugs Off Rate Hikes and Bond Yields: AI Investment Keeps Growth Alive

WASHINGTON – The U.S. economy continues to grow despite inflation, tariffs and higher borrowing costs, defying rising Treasury bond yields and the Federal Reserve’s rate hikes.

The artificial intelligence investment boom looks unstoppable — many believe the potential returns are so bright that even high rates won’t slow tech companies’ investments. Meanwhile, stock markets are also facing competition from a wave of bond issuances by companies involved in building AI, which are drawing capital away from equities.

The yield on 10-year Treasuries, which sets mortgage rates and other forms of borrowing, hit its highest levels in nearly 20 years this week, climbing near 5.2% on Thursday. Bond prices fell on concerns over rising energy prices and high inflation, which are narrowing the path of monetary policy.

Strong economic data is pushing yields higher by fueling speculation that the Fed may need to raise rates even more than expected to cool a potentially overheating economy. Mortgage rates touched 7% for the first time in more than a year on Thursday, stifling home sales and sharply raising the cost of homeownership.

The Fed raised rates last week for the first time in three years; most officials signaled they expect at least one more hike before the end of the year. Analysts note that as long as AI investment continues at this pace, the U.S. economy may keep surprising to the upside — but the risk of more aggressive tightening remains alive.

Source: The Wall Street Journal