The Federal Reserve is perplexed by the resilience of the US economy! Consumption and AI investment remain strong Richmond Federal Reserve Chairman: Inflation's return to 2% path is still in doubt

The US economy is showing a series of apparently conflicting signals. Inflation continues to be higher than the Federal Reserve's target, actual income has declined, and consumer confidence has fallen to historic lows, yet economic growth and consumer spending remain resilient; at a time when corporate recruitment tends to be cautious, artificial intelligence (AI) investment continues to grow rapidly.

The Zhitong Finance App learned that in his speech at the Greenville Chamber of Commerce, Richmond Federal Reserve Chairman Barkin described the current US economy as an environment full of “mysteries” and focused on phenomena such as consumer resilience, corporate investment, the job market, and stubborn inflation.

Barkin is currently an alternate voting member of the Federal Open Market Committee (FOMC).

Real income falls, confidence is low, and consumers continue to spend money

Barkin pointed out that US inflation is currently still higher than the Federal Reserve's target, actual income has declined in the past year, and consumer sentiment has deteriorated markedly. Since 2026, the University of Michigan Consumer Confidence Survey has shown the three lowest monthly readings in the survey's 70-year history.

However, in stark contrast to pessimism, there has been no significant slowdown in US economic activity.

Since 2023, US real GDP has grown by an average of about 2.5%, which is higher than estimates of the long-term trend in the economy. Even as high gasoline prices further strain household budgets this year, the US economy has shown strong resilience, demand remains healthy, and the unemployment rate has even declined.

Barkin believes that one of the key reasons is that consumers have never stopped spending.

He said that after the pandemic, American consumers seem to be more accepting of the “YOLO” (that is, “only once in a life”) style of consumption, and are still willing to spend money even in the face of economic uncertainty. At the same time, wealthy families have accumulated more wealth in recent years, further supporting overall spending capacity.

The scale of AI investment is “unimaginable” and corporate demand is hardly affected by high interest rates

Corporate investment has also shown resilience beyond expectations, and Barkin believes that the most obvious driving factor behind it is artificial intelligence.

“The scale of the investment is unimaginable.” Barkin said that what is more noteworthy is that this round of AI investment does not seem to have been clearly suppressed by high interest rates, rising construction costs, or economic uncertainty, and “demand appears to be showing little sign of stopping.”

Strong corporate profits supported huge capital expenditure.

Barkin said that the profit of US companies increased by more than 30% year on year in the second quarter; if hyperscale cloud computing companies are included, the profit increase was more than 50%. Meanwhile, the market's forecast for corporate profits for the next quarter continues to rise, and the corporate leverage ratio is lower than the level of 2020.

In his view, strong profits mean that companies have both reasons and financial resources to continue to invest in AI infrastructure, so even if financing costs are high, AI-related capital expenditure still shows strong resilience.

Companies are investing heavily, but recruitment is cautious, AI has yet to trigger large-scale layoffs

However, strong capital expenditure did not simultaneously translate into a recruitment boom.

Barkin said that in contrast to corporate investment, in a highly uncertain environment, companies are still concerned about excessive recruitment, so overall they are in a state of “suspension of recruitment.” Many companies choose to keep the number of employees stable or gradually reduce the size of their workforce through natural attrition.

The market is currently paying close attention to whether AI will cause large-scale unemployment, but Barkin believes that judging from actual application at this stage, most AI usage scenarios have yet to show a clear path to large-scale reduction in employee demand.

Currently, the most obvious exceptions are mainly concentrated in positions such as computer programmers and customer service personnel.

At the same time, there is another special phenomenon in the US labor market: while the growth in demand for labor is slowing, the growth in labor supply is also declining.

Barkin pointed out that as the number of net immigrants to the US has declined drastically, and the population continues to age, the number of people entering the labor market looking for work is also decreasing. As a result, “while there may be fewer new jobs, there are fewer people looking for these jobs.”

To a certain extent, this explains why corporate recruitment has clearly cooled down, yet the US unemployment rate has remained relatively low.

Inflation remains the biggest mystery: does the Federal Reserve need to raise interest rates further?

Barkin believes that another unsolved mystery of the US economy is continued stubborn inflation.

However, he said that the real question is not whether inflation can eventually return to the Fed's 2% target, but rather how inflation will return to 2%.

The central question currently facing the Federal Reserve is whether inflation has entered a path where it can continue to fall to 2% on its own, or whether the Federal Reserve will eventually need to raise interest rates further to complete the final stage of the anti-inflation process.

Barkin warned that US inflation has been “too high for too long” and that the longer it lasts, the more likely it is that the price expectations of companies and consumers will adjust upward. Once higher inflation expectations gradually solidify, existing economic strength alone may not be enough to fully reduce inflation to the target.

He said that if this risk is becoming a reality, then additional policy help may still be needed to eventually return inflation to 2%.

Barkin's statement also highlights the current policy challenges facing the Federal Reserve: US consumption and AI investment continue to support economic growth, the job market has cooled but has not deteriorated significantly, and inflation is still above target. In this conflicting data environment, whether the Federal Reserve needs to further tighten monetary policy or wait for the current inflationary pressure to subside on its own remains the core of future policy discussions.