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Lael Brainard Warns of 'Two-Track' US Economy: AI Boom Drives Divide While Broader Sectors Remain Stuck
- Marketing Admin
- Nov 22
- 2 min read
Former Federal Reserve Vice Chair Lael Brainard has issued a stark warning about the US economy, describing it as a "two-track economy" in which AI investments fuel impressive top-line growth but fail to spur hiring, leaving the rest of the economy stagnant and vulnerable. In an interview on November 20, 2025, Brainard highlighted the risks of this AI economic divide, emphasizing weakening labor markets and the potential for a self-reinforcing downturn. As debates intensify over Fed rate cuts in December, her insights underscore the need to balance inflation concerns—potentially exacerbated by tariffs—with protecting jobs and household stability in this bifurcated economic landscape.
Understanding the 'Two-Track' US Economy: AI's Thriving Sector vs. Stagnant Broader Markets
Brainard painted a clear picture of the two-track US economy, stating, "We have a very clear two-track economy," in which the AI sector and related industries—such as data centers, electricity, and chips—are seeing massive investment and strong stock market interest. However, she noted that this leading sector "is doing extremely well, but it's not hiring," contributing to an overall lack of job creation. The rest of the economy, in contrast, is "really stuck" under the hood, grappling with being less favored in capital markets, ongoing impacts from tariffs, and uncertainty about integrating AI into businesses, which discourages hiring. This AI economic divide risks amplifying disparities, with high-income consumers driving resilient spending while broader affordability pressures weigh on household sentiment.
Weakening Labor Markets and Risks of Downturn: Brainard's Call for Action
Delving deeper into the challenges, Brainard warned of weakening labor markets and the dangers of a self-reinforcing downturn in non-AI sectors, where weak demand, higher costs, and uncertainty prevail. Despite solid GDP figures—such as the strong second-quarter growth of 3.8% and expectations for similar third-quarter performance—the underlying cracks in the economy are masked by the AI boom. She emphasized that "neither the booming sector nor the remainder of the economy is really hiring," leading to divergent economic paths that could exacerbate instability. Brainard also highlighted affordability pressures troubling households, which have contributed to consumer sentiment hitting a three-year low.
Advocating for a December Fed Rate Cut: Balancing Inflation and Job Protection
In response to these dynamics, Brainard advocated for a December Fed rate cut to safeguard jobs and growth amid stalling inflation around 3% and potential transitory effects from tariffs. She stressed the Fed's need to delicately balance inflation risks against the priority of preserving employment and household stability, warning that politicization could undermine the central bank's independence and credibility in fighting inflation—ultimately harming lower-income workers. Brainard's perspective positions the Fed at a critical juncture, where action could mitigate the risks posed by the AI-driven economic split and prevent broader stagnation.
