AI TRENDS | Fed Says AI-Linked Investment Boosted Factory Output, While Iran War Uncertainty Remains Key Risk

The Federal Reserve said AI-related investment helped drive strong growth in factory output, while uncertainty tied to the war involving Iran remained the main risk. According to Jin10, the Fed’s semiannual report said overall U.S. economic activity in 2026 maintained a steady expansion, mainly supported by high-tech investment and government spending. It said factory output rose strongly due to AI-related data center investment, and productive capacity continued to improve. The report said the housing market was stagnant, and external economic growth was weak due to Middle East conflict and tariffs. It said the labor market was broadly stable, with both wages and productivity rising, but slower immigration reduced labor supply. Small businesses and households still faced relatively tight credit conditions. The Fed said inflation remained elevated and rose further in the spring, while asset prices were above historical norms. It said the financial system was generally sound, bank reserves were ample, and private credit markets were operating normally despite some redemption pressure. The report said long-term inflation expectations remained broadly anchored near the 2% target, but uncertainty stemming from the war involving Iran remained the main risk.