BMO Capital Markets economist Jennifer Lee says heavy AI investment has helped push up interest rates and inflation pressures. A cooling in the sector could make the Federal Reserve's job easier, she argues, though she does not expect the AI trade to end.
Jennifer Lee, Senior Economist and Managing Director at BMO Capital Markets, argued on Bloomberg This Weekend that a cooling in AI spending could ease the Federal Reserve's task. She said heavy investment in artificial intelligence has helped push both interest rates and inflation pressures higher.
How AI spending feeds into rates and inflation
Heavy AI investment creates demand for energy, labor, and capital all at once. When that much money chases the same scarce resources, prices tend to rise.
Building data centers and buying advanced chips requires enormous sums. As companies compete for financing on that scale, borrowing costs across the economy can stay elevated. Lee's view is that a moderation in that spending could loosen things up and give the Fed more flexibility when setting monetary policy.
AI stocks hit by selloffs
Her comments follow a rough stretch for AI-linked equities. In mid-September, sharp selloffs hit major chipmakers and hyperscalers, including Nvidia, AMD, Intel, and Meta, while Alphabet was also caught up in the volatility.
Those declines lined up with unexpected rises in inflation and Treasury yields. That combination prompted analysts to question whether the current pace of AI capital spending can last. The source also notes multiple tech-related selloffs this year, tied to inflation data surprises and worries about debt-funded expansion.
A slowdown is not a reversal
Lee is not predicting the end of the AI trade. According to her, structural demand for AI infrastructure and capital spending is unlikely to reverse, even amid talk of a slowdown. She tied that demand to longer-term forces: labor shortages and a growing need for automation.
Economists have noted that while AI investment keeps rates elevated, other sectors are more sensitive to rate changes. AI spending, by contrast, has seemed less bothered by borrowing costs, and large tech firms have kept investing despite expensive money.
A natural cooldown in AI investment would therefore reduce one source of inflation pressure without the Fed having to squeeze the rest of the economy harder. For the Fed, the key signals are spending patterns at the big chipmakers and hyperscalers, plus the next rounds of inflation data and Treasury yields.
Source: Crypto Briefing
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