The U.S. economy is running hot and stuck on a hamster wheel as GDP growth must outpace borrowing costs—or risk getting sucked into a debt spiral

High gas prices and low consumer sentiment over the cost of living have obscured how robust the U.S. economy has been lately.

Not only has the economy absorbed shocks from President Donald Trump's tariffs and war on Iran, it has been running hot.

Federal Reserve policymakers recognized that the economy isn't just resilient but thriving as they hiked interest rates earlier this month to rein in inflation.

At the same time, the prospect of a hot economy that adds more inflationary pressure has sent Treasury yields soaring, creating a heavier burden for servicing $40 trillion in U.S. debt.

That means the economy is stuck on a hamster wheel, scurrying to outrun borrowing costs and avoid a reduction in speed that allows debt to grow faster than the economy.

For now, GDP is staying ahead of interest rates. While growth adjusted for inflation has been around 2%, nominal growth has been well above 6%—still more than the 5.16% 10-year yield, even after it jumped more than a full percentage point since the Iran war began.

Growth in the third quarter could show even more acceleration, as a recent gauge of U.S. business activity for September hit a five-year high.

Of course, the AI boom has a lot to do with that. Capital expenditures from Alphabet , Amazon , Microsoft , Meta , Oracle , and SpaceX are projected to total $870 billion this year, up from $470 billion in 2025. S&P Global estimated last month that spending from the handful of hyperscalers will exceed $1.3 trillion in 2027 .

In fact, the AI build-out is on track to top the railroad mania as the biggest boom in U.S. history, according to economist Stijn van Nieuwerburgh .

The infusion of all that capital is also spreading beyond the tech sector to the so-called old economy. Indeed, industrial stalwarts like Caterpillar and GE have been among the biggest beneficiaries of the data center frenzy.

"The breadth and magnitude of the AI investment impulse spilling over to other sectors is as surprising as it is extensive," UBS economist Jonathan Pingle wrote in a note on Wednesday. "The demand impulse from AI appears to be spilling over to help create demand for capex outside of tech."

The federal government's $2 trillion annual budget deficit also represents more stimulus. Much of the money the government raises by selling debt goes into consumers' pockets, primarily via entitlement payments, which eventually boost profits and stock valuations, Research Affiliates said in a note early this year.

But how much longer can the U.S. economy keep growing faster than U.S. debt?