Warsh Says AI Investment Is Not Insulated From Interest Rates

Federal Reserve Chair Kevin Warsh said artificial intelligence investment remains exposed to interest rates, tying the sector’s spending boom to monetary policy as policymakers held rates steady amid elevated inflation.

“Interest rates get in the cracks,” Warsh said during a news conference Wednesday, Oct. 28. He made the remark during an exchange about whether AI investment is insulated from monetary policy.

Warsh said economic activity was expanding at a strong pace and capital investment was robust. High-tech investment was leading an acceleration in capital investment that was spreading into other categories, he said. Investors had also become more discerning in allocating capital.

Credit conditions had tightened for some businesses and households since the Fed’s September policy action, Warsh said. He described financial conditions overall as tighter but said he was “unwilling and unable to call them tight.”

In a 10-2 decision, the FOMC left the federal funds target range unchanged at 3.75% to 4%. The decision came at 2 p.m. ET (18:00 UTC), followed by Warsh’s news conference at 2:30 p.m. ET (18:30 UTC).

Lisa D. Cook and Beth M. Hammack dissented, favoring a 0.25 percentage-point increase. The committee said inflation remained elevated and it needed more information to determine the policy stance needed to return inflation to its 2% goal. The Fed voted on Sept. 16 to raise its target range by 0.25 percentage point.

Warsh has also said AI could raise productivity while warning that the path may be “very bumpy,” in earlier comments on AI and productivity.