Federal Reserve: AI-Related Investments Driving Strong Output Growth; Iran War Remains Key Risk

According to the Federal Reserve's semiannual report released on July 10, U.S. economic activity in 2026 remains on steady expansion, primarily driven by high-tech investments and government spending. Factory output has surged due to AI-related data center investments, while production capacity continues to improve. However, the housing market has stalled, and external economic growth faces headwinds from Middle East conflict and tariffs. Labor markets remain stable with rising wages and productivity, though declining immigration has reduced labor supply. Inflation remains elevated and rose further in spring, with asset prices above historical norms. The Federal Reserve noted that long-term inflation expectations remain anchored near the 2% target, but uncertainty from the Iran war persists as the primary risk.
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