When A.I. Spending Starts Slowing, Start Worrying About Recession | Wolf Richter

The US economy is currently running hot, fueled by a massive AI-driven investment boom and robust consumer spending. This high nominal GDP growth, coupled with persistent inflation, acts as a functional strategy to manage the $40 trillion federal debt burden by inflating away its real value. While the AI sector exhibits extreme valuations and uncertain revenue models, no immediate recessionary signals exist in current bond or stock market data. Contrary to the "K-shaped" recovery narrative, most households are participating in the growth, and credit card delinquency rates remain historically low. A potential recession remains a future risk, contingent on a significant collapse in AI-related corporate spending and a subsequent decline in consumer confidence. For now, the focus remains on navigating this high-inflation environment, with bonds emerging as a newly viable investment alternative to speculative equities.