The Federal Reserve closed 2025 by cutting rates by a quarter point for the third time this year. The decision was not unanimous: nine of the board members voted in favor while three voted against the rate cut. The decision was made as the US economy continues to reel from tariffs, mass deportations, cuts to government spending, and stalled hiring. To make matters worse, official price and labor market data remain murky since the government shutdown.

On the other hand, the US economy expanded at the fastest pace in two years, increasing 4.3 percent. This has produced a confusing picture of the real state of the economy. However, things become clearer when we take into consideration the fact that much of this growth is driven by spending in the AI sector.

On its face, the US economy appears pulled in two directions: on one side, severe inequality, inflation, slowed hiring, and high youth unemployment; on the other, a seemingly unstoppable tech sector, wealthy stockholders responsible for a disproportionate share of consumption, and expanding federal spending on defense and border enforcement technologies reliant on artificial intelligence.