Fed report: AI investment drives growth, Iran war is biggest risk

According to the Federal Reserve's semi-annual report released on July 10, the U.S. economy in 2026 is maintaining a solid expansion, driven by high-tech investment and government spending. The report noted that investment in AI-related data centers has strongly boosted manufacturing output and continues to expand production capacity. However, the housing market has stagnated, and the external economy shows sluggish growth due to the conflict in the Middle East and the impact of tariffs. The labor market is generally stable, with wages and productivity rising in tandem, but a slowdown in immigration has reduced the labor supply. Small businesses and households continue to face tight financing conditions. Inflation remains high, having risen further in the spring, and asset prices are above their historical averages. The financial system is generally sound with sufficient bank reserves, and the private credit market is functioning normally despite some redemption pressures. While long-term inflation expectations are anchored near the 2% target, the report identified uncertainty stemming from the war in Iran as the biggest remaining risk.