Good morning.
If generative AI was the top business story of 2023, the buoyant American economy has to rank as No. 2. GDP grew at a stunning 5.2% in the third quarter, and while it likely slowed in the current quarter, it shows no sign of falling off a cliff. Meanwhile inflation miraculously moderated to just 3% in November—above the Fed’s 2% target, but not by much.
I’ve been among those who criticized the Fed for moving too slowly against inflation. Plenty of others have taken the opposite view, saying rate hikes were too aggressive. But if I were Fed Chairman Jerome Powell, I’d celebrate this holiday season. So far, the Fed seems to have gotten it just right.
The two big stories, of course, are related. Excitement about AI has helped feed optimism for the future and spurred businesses to invest. You can see evidence of that in the stock market, where the Magnificent Seven—Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta—have soared 75% in value this year, providing the lion’s share of the lift in the market. Remove them, and the overall market rise is barely in double-digit range.
The other factor that gets less attention is the remarkable surge in public investment. The Committee for Economic Development recently reported that the powerful combination of the Bipartisan Infrastructure Law, the Chips Act and the Inflation Reduction Act “represent the largest cross-sector public investment since the New Deal, introducing $2 trillion in new federal spending over 10 years.” Note that this is real investment—the kind that spurs business to jump into the act. The U.S. has become the top target for global investment dollars with companies looking to cash in on infrastructure construction; hydrogen, battery and other green energy installations; and of course, semiconductor manufacturing. One company alone—Intel—stands to reap $10 billion to $15 billion in government subsidies, after investing more than $40 billion of its own in new chip plants
One brake on the current wave of economic activity is the U.S. government’s regulatory zeal. The incentives above come with all sorts of strings attached that could obstruct their intent. Overreach in areas like antitrust is another damper, as bipartisan commentators have highlighted recently on Fortune. Moreover, new economic problems may be lurking in the New Year.
But for the moment, the U.S. boasts the most robust economy in the world. And the powerful combination of new technology and government investment may keep that going for some time to come.
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Gen-Z entrepreneurs
Younger entrepreneurs are changing the traditional path to launching a startup. One change: Less willingness to drop out of college, as campuses offer founders space, networks and cheap labor. “It’s a uniquely good time to be investing in students,” says one CEO of a student-focused and student-led venture capital firm. Fortune
Conflicts of interest
The speed of AI’s growth over the past year is fostering numerous conflicts of interests on the boards of major tech companies. For example, Microsoft board member Reid Hoffman is a co-founder of Inflection AI, which is launching an AI personal assistant that competes with Microsoft’s offerings. Fortune
California’s housing crisis
California’s inability to build enough homes for its population reflects a growing crisis for the U.S. Experts blame exclusionary zoning regulations, not-in-my-backyard politics, and a mindset that sees a home as a financial asset, rather than a place to live. Despite having 12% of the U.S.’s population, California has 22% of the nation’s homeless. Fortune
AROUND THE WATERCOOLER
Prepare for hellish travel this holiday season. After decades of consolidation and cutbacks, can air travel be fixed? by Maria Aspan
Indonesia’s decision to ban nickel ore exports was a surprising success for President Jokowi. Will it work for his successors? by Lionel Lim
Gen X has the largest wealth gap of any generation, and it means ‘the American Dream of retirement is going to be a nightmare’ for them by Alicia Adamczyk
Nissan to sell electric vehicles made in China globally in another sign of automakers responding to Chinese automotive prowess by Steve Mollman
Top insurance CEO announces she personally signs off on white male new hires as part of the firm’s diversity drive by Orianna Rosa Royle
An army of 100 million bots and deepfakes—buckle up for AI’s crash landing in the 2024 election by Alexei Oreskovic
This edition of CEO Daily was curated by Nicholas Gordon.
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