Catenaa, Sunday, September 20, 2026- The Federal Reserve’s interest rate hike last week signals a new world of sticky inflation and higher growth fueled by AI spending by companies.
Associated Press reported that the US economy is growing steadily despite being hit with repeated shocks, and may even be accelerating, while inflation remains stubbornly high.
Big tech companies are borrowing in massive amounts to keep up with cash needed for AI infrastructure by building up data centers, while the federal government is still running large yearly budget deficits.
All these trends point to higher interest rates regardless of what the Fed does, analysts told AP.
According to AP, mortgage rates fell into the 3% range in the 2010s and even lower during COVID-19, but such deals are long gone. The average 30-year mortgage rate reached 6.95% last week, the highest in more than a year and a half.
A big reason for the change is a shift from the pre-pandemic economy, in which consumer and business demand was weak, to the current economy, in which healthy consumer and business spending is colliding with supply shocks and bottlenecks, Joe Brusuelas, Chief Economist at RSM, told AP.
In addition to higher oil and gas prices because of the Iran war, he said that the AI buildout has struggled with an insufficient supply of computer chips, electronic equipment, and workers to put it all together.
“We’ve undergone a structural transformation of the economy,” Brusuelas said. “The regime change in inflation and interest rates is the outcome.”
The economic shift is similar to where it was before the financial crisis in December 2007 that lasted through June 2009.
The report by AP said that even after the downturn ended, consumer and business spending remained weak, and millions of Americans in the 2010s focused on paying down outsized mortgages and credit card debt instead.
Businesses saw few investment opportunities, and many big tech firms such as Alphabet’s Google and Meta’s Facebook piled up cash, the report said.
The same companies are using that piled-up cash to build out AI data centers, and are borrowing even more money to do so.
And American consumers, despite surveys finding they are pessimistic about the economy, are still spending at a healthy pace.
Economists at Bank of America forecasted that growth will reach a healthy 3% annual rate in the July-September quarter, after a recent report showed that retail sales picked up in August.
