Stock market numbers are displayed on the floor of the New York Stock Exchange during morning trading on June 4, 2026 in New York City. Photo by Michael M. Santiago/Getty Images files

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As we approach Halloween, the prize for the scariest costume may belong to the U.S. economy itself: Dr. Jekyll and Mr. Hyde.

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Last week, two hotter-than-expected inflation reports out of the United States appeared to suggest that the Federal Reserve remains well behind the curve. Yet Treasury yields barely reacted. That shouldn’t be surprising, as bond investors, who have a habit of seeing through the noise faster than equity markets, appear to recognize something important: This is not traditional demand-driven inflation.

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Instead, inflation continues to move higher primarily because of supply-side forces that interest rates cannot easily fix. Gasoline alone accounted for more than half of September’s monthly increase in consumer prices while energy represented more than half of the increase in producer prices and more than 80 per cent of the rise in goods prices. Raising interest rates may reduce demand, but it does little to increase oil production or resolve geopolitical disruptions affecting global energy markets.

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As a result, what we’re witnessing is a deeply divided economy. Dr. Jekyll is the multitrillion-dollar artificial intelligence buildout. A handful of technology giants are spending at a pace rarely seen outside of wartime mobilization, building data centres, power infrastructure, semiconductor capacity and digital ecosystems. The scale of this investment is extraordinary. The Goldman Sachs Group Inc. estimates global AI-related investment could approach US$800 billion in 2026 and ultimately surpass US$1 trillion annually later this decade. It is creating thousands of likely temporary construction and infrastructure jobs, driving capital expenditures and supporting a surge in economic activity, but it is also creating the illusion that the broader economy is far stronger than it really is.

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Mr. Hyde is everything lurking underneath.

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Away from the AI headlines, much of Main Street America is hurting. Consumers are becoming increasingly selective with their spending after years of elevated inflation eroded purchasing power. Just as conditions appeared to be stabilizing, the conflict with Iran sent energy prices sharply higher, once again squeezing household budgets. According to the U.S. Bureau of Labor Statistics, real average hourly earnings declined 0.7 per cent over the past year after adjusting for inflation. Workers partially offset that loss by working longer hours, leaving real weekly earnings essentially unchanged. In other words, many Americans are not getting ahead. They are simply working more to maintain the same standard of living.

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The housing market offers perhaps the clearest example of this growing divide. Existing home sales remain stuck near post-financial-crisis lows, while sellers now outnumber buyers by roughly 63 per cent, the largest imbalance in more than a decade. In much of the country, affordability has deteriorated to the point where prospective buyers simply cannot make the math work.