The most aggressive monetary tightening in 40 years has failed to cool the US economy, with long-term bond yields at multi-decade highs yet growth remaining resilient, according to analysis from Barclays.

Thirty-year US Treasury yields have reached their highest levels since 2000, prompting questions about whether the transmission mechanism between interest rates and economic activity has broken down.

Brad Rogoff, global head of research at Barclays, and Anshul Pradhan, head of US rates research, argue that data centre construction linked to artificial intelligence investment has filled the gap left by weakening residential building activity, blunting the impact of higher borrowing costs.

Services, which account for roughly 70 per cent of the US economy, are generally less sensitive to interest rates. Consumers typically continue purchasing services such as haircuts and childcare regardless of borrowing costs, curtailing spending only when financial asset prices collapse or jobs are lost.

The housing sector, normally the most rate-sensitive part of the economy, has been shielded by the mortgage lock-in effect, with homeowners reluctant to move and take on higher-rate loans. Meanwhile, technology companies investing in AI infrastructure are driven by demand for computing power rather than the cost of capital.

However, Barclays strategists caution that the factors blocking rate transmission are likely to fade. Data centres are capital-intensive during construction but employ few workers once operational. The mortgage lock-in effect is beginning to erode as housing transactions gradually normalise.

Should rates rise sufficiently to trigger a pullback in equity markets, the services sector could yet be affected, the strategists warn.