Liz’s view
One rule of investing is “don’t fight the Fed.” Playing the contrarian to the Federal Reserve’s plans to stimulate or dampen the economy only ends badly.
But Big Tech is not run by rule-followers.
AI giants have been almost willfully indifferent to the rising cost of money. Rates go higher, and they borrow more. It’s a problem for the Federal Reserve, which is trying to tamp down inflation that, as Chicago Fed President Austan Goolsbee told us last week, is “jumping out of its lane” — spreading from AI-linked sectors into unrelated parts of the economy. The Fed’s main lever, at least so far, isn’t working.
Mark Zuckerberg and Dario Amodei aren’t giddy consumers whose spending cools when borrowing gets expensive. They see themselves as great men of history, securing super intelligence for the West and ushering in an age of intergalactic abundance. They also believe customer spending on AI has only just begun, and so the coming revenue can justify their investments. That kind of existential drive can’t be discouraged by an extra 75 basis points of bond interest.
Both the AI companies and the Fed are desperate for goodwill and credibility. If mortgages cost 15% and hyperscalers are still spending like there’s no tomorrow, people are going to be very mad at both of them.
Notable
- Speaking at the IMF annual meeting in Bangkok last week, Warsh recognized that AI investment was creating a “shock” on prices, but reiterated his conviction that the technology would bring wealth and productivity in future.