Inside America’s split-screen economy: Is AI keeping the U.S. afloat

There’s a strange calm in the U.S. economy this fall.

The numbers look steady, the markets look strong, and yet almost everyone — from Wall Street CEOs to Fed officials to consumers at the checkout line — feels an undercurrent of unease. Growth is holding up, but hiring is slowing. Wages are cooling, but so is confidence.

Much of that paradox centers on artificial intelligence. The same technology that’s driving a boom in capital investment and stock valuations is also reshaping jobs, productivity, and even the meaning of economic strength. Some economists say AI is propping up the economy. Others warn it may be masking deeper weaknesses.

This report looks at how those forces are colliding — in Washington, on Wall Street, and across Colorado’s fast-changing economy.

The big picture

The U.S. economy is walking a ridge between resilience and risk. As the Wall Street Journal reported, Federal Reserve Chair Jerome Powell told the National Association for Business Economics on Oct. 14 that the economy “appears to be in stable shape,” even as many indicators remain frozen during the government shutdown.

A WSJ survey of 64 economists conducted Oct. 3–9 projects real GDP growth of 1.7 percent in Q4 and 1.9 percent in 2026 – up from 1 percent in July’s survey, but with hiring sharply weaker. Employers are expected to add only about 15,000 jobs per month, down from 50,000 in July.

That disconnect – steady output, slower hiring – is the story of 2025's economy.

Economists note that tighter immigration policies are also constraining labor-force growth – a key reason the unemployment rate can stay near 4.5 percent even as monthly job creation slows.

What’s driving the paradox

Two opposing forces define the economy this year:

Tariffs and political risk weigh on confidence and costs
AI investment and productivity gains push growth higher

Yale Law School professor Natasha Sarin calls this “something positive happening in spite of policy, not because of it.” She wrote in The New York Times, “The economy is being bolstered by a remarkable investment boom in artificial intelligence, but it’s happening in spite of tariffs, immigration cuts, and attempts to undermine the Fed, not because of them.”

Sarin estimates AI capital spending could reach a remarkable 2 percent of GDP this year — about $1,800 per person — up from less than 0.1 percent in 2022. That represents roughly a twentyfold increase in just three years, a scale of investment rarely seen outside wartime or major infrastructure booms.

“Without these investments,” she argued, “economic growth this year might have clocked in at around 1 percent. Instead, it’s likely to land at almost twice that.”

Her warning: The same boom giving the economy its “runway” could also mask fragility. “It’s worse than putting all your economic eggs in one basket. It’s closer to putting them in one basket – and stomping on all the other baskets.”

That imagery has become shorthand for the AI economy vs. everything else – one engine running hot while the rest of the train strains uphill.

The Fed’s tightrope

If the Fed’s job is to keep both engines moving at the same speed, Jerome Powell faces one of the toughest balancing acts in years.

He told economists on Oct. 14 that “the outlook for employment and inflation does not appear to have changed much” despite the shutdown that has halted major data releases.

The Fed’s benchmark rate stands near 4 percent, and most economists expect two additional quarter-point cuts before the year's end.

Looking ahead, although Powell’s reputation remains strong – with 77 percent of surveyed economists giving him an A or a B – nearly 80 percent expect the central bank’s independence to erode as political pressure mounts.

Sarin offered her own caution: “Presidents do not control business cycles, nor can they do much to change demographic trends or bring down the cost of groceries. In good times, politicians often get too much credit for their economic wizardry; in bad times, too much blame."

It’s a reminder that monetary policy can steady the symptoms but can’t rewrite the fundamentals.

Wall Street sees the good - and the bad

Corporate America is caught between optimism and unease.

According to the WSJ, the six largest U.S. banks earned a combined $41 billion in Q3 – up 19 percent year-over-year – fueled by dealmaking, steady consumer activity, and a buoyant stock market.

Yet, even bullish executives sound uneasy. JPMorgan’s Jamie Dimon warned that “when you see one cockroach, there’s probably more,” pointing to the surprise bankruptcies of Tricolor Auto and First Brands. “Everyone should be forewarned.”

Ted Pick, CEO of Morgan Stanley, added: “There is considerable uncertainty around how the economy manifests itself in terms of Fed policy. To ignore that would be silly.”

Sarin framed the same tension from an economist’s view: "Markets often have a way of disciplining policymakers. The AI boom, by contrast, is masking real problems. To navigate this moment smoothly requires creating policy that will expand our economy and make it more resilient."

Rising indexes may not signal broad health – they may reflect the narrow surge in AI-driven capital spending that’s holding up the averages.

Case in point: In August, it was reported that just four AI-related megacaps – Nvidia, Meta Platforms, Microsoft, and Broadcom – were responsible for 60% of the S&P 500's total year-to-date appreciation.

The contrast with small businesses is stark: the National Federation of Independent Business optimism index has slipped for two straight months, and Fed data show credit standards still tighter than their long-run average. Main Street remains cautious even as Wall Street celebrates.

Markets are leaning bullish — for now

For everything that looks cautious in the economy, markets continue to bet on upside.

The S&P 500 and Nasdaq each climbed over 1 percent on October 20, nearing record highs, driven by tech gains and hopes that the shutdown ends soon. Analysts expect 8–9 percent S&P 500 earnings growth in Q3, and early beat rates are strong.

UBS Global Wealth Management just upgraded global equities to “Attractive,” citing AI-led productivity and a friendlier policy backdrop. The IMF similarly highlighted AI investment as a key reason the U.S. is outperforming its G7 peers.

Why it matters: markets are essentially placing a soft-landing bet – that AI-aided productivity plus decent earnings can outrun slower hiring. But it’s a narrow bet; if consumer cracks widen or policy shocks re-emerge, sentiment can turn quickly.

Consumers on the fault line

Roughly 70 percent of U.S. GDP comes from consumer spending, according to the Bureau of Economic Analysis. That’s where any downturn first appears.

Best Buy CEO Corie Barry told Fortune’s Most Powerful Women summit that she’s increasingly worried about “reliance on the high-income consumer.” She said, “That makes it feel like there is resiliency in the overall market, but your low-income consumers are really struggling.”

Barry added that “everything … in some way has been impacted by tariffs,” a challenge some firms have turned into opportunity through new supply-chain partnerships.

In a similar vein, McDonald’s CEO Chris Kempczinski reported that low-income customer traffic fell by double digits year-over-year while higher-income visits held steady – proof of a “bifurcated consumer base.”

Billionaire investor Ray Dalio told Bloomberg that swelling deficits and inequality have created conditions “very much analogous to the years before World War II.” He went on to suggest that surging debt is just part of the problem, with ongoing global conflicts and wealth inequality also creating an environment that offers “plenty to worry about.”

That may sound abstract, but at least some of the numbers back him up. Bank of America’s latest research shows the income gap widening again after severak years of progress. BofA data show wages for lower-income workers rising just 1.3 percent over the past year, compared with 3.2 percent for top earners — the widest gap since 2021.

Housing adds another pressure point: Mortgage rates averaging 6.3 percent and tight inventory have kept affordability at record lows, amplifying the divide between those benefiting from rising asset values and those locked out of ownership.

Together, those signals echo Sarin’s macro theme: two economies pulling apart – one powered by capital and code, the other by paychecks that can’t keep pace.

A.I.’s paradox: No omelets without broken eggs

Natasha Sarin, the Yale professor, sees the AI boom as both miracle and mirage. “If history is any guide,” she wrote, “this revolutionary technology will change the world – but not without causing economic chaos.”

She compared today’s frenzy to past bubbles – the railway mania of 19th-century Britain and the late-1990s dot-com boom – moments when capital flooded into transformative but uneven technologies. “Bubbles burst, financial markets collapse, investors count their losses, and people lose their livelihoods,” she warned.

Minneapolis Federal Reserve President Neel Kashkari echoed that unease: AI data centers “take a lot of money to build, but not that many workers to operate.” That efficiency helps tame inflation but leaves workers anxious – a case of jobless growth that looks strong on paper and fragile in life.

"Markets often overlook how technological revolutions redistribute opportunity before they create it,” Sarin observed. The AI boom may be building the future – but it’s also testing the present.

Colorado’s split economy

Colorado’s story mirrors the nation’s split-screen narrative – but with sharper contrasts. Boulder, Denver, and Colorado Springs are thriving on tech investment, AI research, and venture capital. Meanwhile, rural regions tied to manufacturing, agriculture, and construction still face slower growth and worker shortages.

The good news: Colorado's unemployment fell to 4.2 percent in August – slightly lower than the national rate. And yet, job postings in traditional industries in the state are down sharply. At the same time, Colorado is seeing steady expansion in AI and automation-adjacent fields: data centers, cloud infrastructure, and university-linked startups.

Housing pressures in the state add a local dimension to the national divide. Metro Denver median single-family home prices hover at $650,000. Economists expect those affordability challenges to remain one of Colorado’s key tests as it tries to balance innovation-driven growth with an accessible cost of living.

The bottom line

This month's Wall Street Journal Economic Forecast Survey of 64 economists found an average recession probability of 33% over the next 12 months, which remained unchanged from the previous survey in July. These economists expect unemployment to hover near 4.5 percent – high enough to cool wage pressure but not break confidence.

Wall Street’s optimism is hard to miss — markets are near record highs, dealmaking is rebounding, and the AI sector continues to attract billions in new spending. But the consumer side of the economy tells a different story. With wages flattening and prices still high, households are feeling the strain even as indicators suggest stability. The split-screen view, for now, remains intact.

Whether that split narrows or widens will determine how this chapter of the economy is remembered — will it be the start of a new AI-powered economic cycle or will it be a temporary pause before the next slowdown?

For now, both stories are true at once: We live in a nation investing heavily in its digital future, with a public hoping to feel the lift.