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Quick comment on recent Fed study of AI buildout

Published on July 20, 2026

Gerard MacDonell

On Friday, Fed researchers published a study on the macroeconomic effects of the AI buildout. The main points are that the capital spending boom is ongoing but that there is no decisive evidence thus far that the hoped for productivity advances are being realized. The authors are open minded that this may just reflect the lags often associated with the commercialization of a new General Purpose Technology. But decisive evidence is lacking, both in the sector level productivity data and in aggregate employment data itself.

Much of the micro side of this is beyond my competence, as in the case of the cost of a teraflop! But I was pleased to see that they come to conclusions about the demand side impact of the capex boom that I do. They are not suckered into adding together real dollar aggregates, but they instead do proper chain weighting. And they adjust for trade drag, although in a way that implies slightly less of it than I find. There are two issues here. First, they down weight export and import shares of capital goods to reflect that some goods classified as capital goods actually involve consumer items. And second, they focus on computers and peripherals and don’t incorporate semiconductors. They find 50-55 bps of drag, where I find 70. Relatedly, they implicitly find that the share of aggregate demand growth that can be attributed to even their (conventionally) inclusive measure of AI-related capex is far below half, especially when taken over four quarters.

Macro is hard and I often make errors of judgment — or even calculation! But I do wonder about how people so gullibly swallow the stories that circulate from time to time. If consumer spending growth is running at 2%, it is obviously not sensible to describe all demand growth as AI capex. Doing the math right — or not plainly wrongly — just reflects that.

Trade Drag offsets much of it. A graph of data on a screen

AI-generated content may be incorrect.

Source: Federal Reserve as linked above

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