The 10-year U.S. Treasury yield climbed to 5.34 percent on Thursday, its highest since 2002, before easing to about 5.24 percent. It finished the day at its highest level since 2007. The rise came on the eve of the September jobs report, and it reveals what’s supporting the American economy—and what could unsettle it.
The Labor Department releases employment figures Friday. Economists surveyed by Bloomberg expect payrolls to have risen by about 90,000, with unemployment holding at 4.1 percent. The report also includes a monthly update on average hourly earnings, a figure that matters more than usual now. Inflation has outpaced workers’ pay in recent months, while price increases have accelerated since the war with Iran began, eroding pay gains.
Private Capital Carries the Load
Mark Zandi, chief economist at Moody’s Analytics, said artificial intelligence accounted for a substantial share of U.S. economic growth this year. The latest government report put real gross domestic product growth at an annual rate of 2.3 percent in the second quarter. Zandi estimated that 0.6 to 0.7 percentage points—perhaps 30 percent of inflation-adjusted growth this year—came directly or indirectly from the AI boom.
Corporate money is driving much of that activity. In August, Goldman Sachs estimated that companies would spend $1 trillion worldwide in 2026 on data centers, power supplies and infrastructure. Stijn Van Nieuwerburgh, a Columbia University business professor, offered an even larger projection in a paper presented at the Brookings Institution late last month. He estimated U.S. AI companies’ capital expenditures could reach $10.3 trillion by 2032, averaging 3.63 percent of GDP each year. That would make it the biggest infrastructure project in U.S. history, “larger, relative to the economy, than the major U.S. canal, railroad, electrification, highway and telecommunications investment booms.”
The bills are steep. Financing these projects requires substantial debt, and higher bond interest rates make AI projects more expensive. Analysts and investors have linked rising yields to AI-driven growth expectations, inflation pressure and concerns about government debt. Investors also expect the Federal Reserve may need to keep rates elevated to prevent the economy from overheating.
Concentration and Bubble Warnings
The stock market’s gains are uneven. The iShares U.S. Technology ETF, a rough proxy for AI-led tech stocks, returned 33.7 percent for the calendar year through Thursday. By contrast, the ProShares S&P 500 Ex-Technology ETF returned 4.1 percent. In May, 10 technology companies accounted for more than 40 percent of the S&P 500’s market capitalization. A major fall in AI stocks could hit people who hold them in retirement funds.
Capital Economics, an independent research service based in London, issued a blunt warning Tuesday: “There are growing signs that the A.I. equity market boom is in its final stages.” The firm said high AI-driven stock prices had formed a “bubble” likely to burst before the end of next year. Profits remain strong for now. Wall Street analysts estimated S&P 500 earnings grew more than 29 percent in the three months through September.
Zandi said the wealth effect has done real work. In February, he estimated “for every $1 increase in net worth, consumer spending ultimately increases by 2 cents.” Rising wealth has helped the richest 20 percent of consumers drive spending this year, despite declining overall consumer sentiment. A market crash, he said, would reverse that, and “the economy would take a hit.” Reporters David E. Sanger, Jonathan Swan, Cecilia Kang and Dustin Volz reported that President Trump worries a faltering AI boom could crash the stock market and quickly lead to a recession.
Rates, Energy and Abroad
Brent crude stood above $100 a barrel, up roughly 40 percent since the Middle East conflict began in late February. Mahmood Pradhan, a nonresident fellow at Bruegel and former deputy director of the European department at the International Monetary Fund, said, “The Middle East war has really turned everything around.” Central banks are raising rates again, he said, increasing government costs and leaving less money available to support the economy if conditions worsen. The Federal Reserve, European Central Bank and Bank of Japan all raised rates last month.
Europe is feeling the strain. The yield on 10-year French bonds reached 4.92 percent, also its highest since 2002, and the spread between French and German 10-year yields widened to nearly 1.3 percentage points, the largest since 2012. France is trying to pass a budget that would slightly reduce its deficit, but repeated difficulties and an April presidential election have made investors skeptical.
At home, the labor market has absorbed shocks from the pandemic, inflation, wars and tariffs. Hiring has slowed. Baby boomers are retiring at a notable pace, while immigration restrictions under the Trump administration have limited the number of people entering the workforce. Job gains have clustered in education, health care and social assistance, while manufacturing, finance and technology have lagged or shed jobs. Building data centers is creating jobs, though measuring AI-related job losses remains difficult.
Why This Matters:
The figures point to an economy relying heavily on private investment in one sector, increasingly financed with debt at Treasury yields last seen decades ago. Zandi’s estimate that AI supplied about 30 percent of this year’s growth means a pullback would reach well beyond Silicon Valley, including retirement accounts and spending by wealthier households. Higher yields also raise borrowing costs for companies and governments, while Pradhan’s warning about less room to support the economy applies to Washington as much as Paris. From a fiscal and market-stability perspective, Friday’s jobs report matters less for its headline than for what it says about wages falling behind prices as borrowing gets costlier.