US Economy Shifts to Higher-Rate Era Amid AI Boom

The US economy is entering a new era of higher interest rates due to persistent inflation, heavy government borrowing, and a surge in artificial intelligence investment.

Economists say the Federal Reserve has less influence over longer-term rates than broader economic forces, including inflation, government borrowing, and demand for capital.

The average 30-year mortgage rate reached 6.95% last week, its highest level in more than a year and a half, while the yield on the 10-year Treasury note rose above 5% this year for the first time since 2023.

Joe Brusuelas, chief economist at RSM, described the expansion as uneven, with much of the momentum coming from AI investment and spending by wealthier households that have benefited from rising stock prices and expectations of stronger corporate profits from AI.