Good morning.
If generative AI was the top business story of 2023, the buoyant American economy has to rank as No. 2. GDP grew at a stunning 5.2% in the third quarter, and while it likely slowed in the current quarter, it shows no sign of falling off a cliff. Meanwhile inflation miraculously moderated to just 3% in November—above the Fed’s 2% target, but not by much.
I’ve been among those who criticized the Fed for moving too slowly against inflation. Plenty of others have taken the opposite view, saying rate hikes were too aggressive. But if I were Fed Chairman Jerome Powell, I’d celebrate this holiday season. So far, the Fed seems to have gotten it just right.
The two big stories, of course, are related. Excitement about AI has helped feed optimism for the future and spurred businesses to invest. You can see evidence of that in the stock market, where the Magnificent Seven—Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta—have soared 75% in value this year, providing the lion’s share of the lift in the market. Remove them, and the overall market rise is barely in double-digit range.
The other factor that gets less attention is the remarkable surge in public investment. The Committee for Economic Development recently reported that the powerful combination of the Bipartisan Infrastructure Law, the Chips Act and the Inflation Reduction Act “represent the largest cross-sector public investment since the New Deal, introducing $2 trillion in new federal spending over 10 years.” Note that this is real investment—the kind that spurs business to jump into the act. The U.S. has become the top target for global investment dollars with companies looking to cash in on infrastructure construction; hydrogen, battery and other green energy installations; and of course, semiconductor manufacturing. One company alone—Intel—stands to reap $10 billion to $15 billion in government subsidies, after investing more than $40 billion of its own in new chip plants
One brake on the current wave of economic activity is the U.S. government’s regulatory zeal. The incentives above come with all sorts of strings attached that could obstruct their intent. Overreach in areas like antitrust is another damper, as bipartisan commentators have highlighted recently on Fortune. Moreover, new economic problems may be lurking in the New Year.
But for the moment, the U.S. boasts the most robust economy in the world. And the powerful combination of new technology and government investment may keep that going for some time to come.
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
