US equities have fully recovered from their selloff following the announcement of reciprocal tariffs . Investors believe the US economy will benefit greatly from the adoption of generative artificial intelligence.
The late 1990s provide a cautionary lesson on the limits of purported productivity gains due to technological changes. Higher AI-induced productivity growth will raise the real neutral federal funds rate.
High federal government borrowing could raise the funding costs of AI-related capital spending in the private sector. Borrowing capacity has risen significantly due to the Big Beautiful Bill's passage.
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