The Fed's semiannual report said US economic activity remained robust in 2026,
driven by high‑tech investment and government spending. Factory output rose
sharply as AI-related data‑center investment boosted capacity. Housing activity
stalled. External demand was weak, weighed down by the Middle East conflict and
tariffs. The labor market was broadly stable with wages and productivity rising,
but slower immigration reduced labor supply. Small firms and households face
tighter credit conditions. Inflation remains elevated and rose further in
spring; asset prices are above historical norms. The financial system is broadly
sound, with ample bank reserves; private credit markets face some redemption
pressure but are functioning. Long-run inflation expectations remain anchored
near the 2% target. Uncertainty from a possible Iran war is identified as the
primary downside risk.
