BMO Capital Markets' Jennifer Lee argues that a cooling AI spending boom could give the Fed more room on rates and inflation
The AI boom has been great for chipmakers. It has been less great for anyone trying to keep inflation in check.
That is the argument from Jennifer Lee, Senior Economist and Managing Director at BMO Capital Markets. Speaking on Bloomberg This Weekend, she said heavy investment in artificial intelligence has helped push both interest rates and inflation pressures higher. Her twist: a cooling in the sector could make the Federal Reserve’s job easier.
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. When 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. For the Fed, that breathing room could mean more flexibility when setting policy.
A bumpy year for AI stocks
Her comments arrive after a rough stretch for AI-linked equities. In mid-September, sharp selloffs hit major chipmakers and hyperscalers, including Nvidia, AMD, Intel, and Meta. 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.
There have been multiple tech-related selloffs this year, tied to inflation data surprises and worries about debt-funded expansion.
Why a slowdown is not the same as a reversal
Lee is not predicting the end of the AI trade. She drew a clear line between a cooling and a collapse.
According to her, the 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.
The Fed’s balancing act
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. Large tech firms have kept investing despite expensive money.
A natural cooldown in AI investment would reduce one source of inflation pressure without the Fed having to squeeze the rest of the economy harder.
What this means for investors and policymakers
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.
The broader point from Lee is that monetary policy and the AI trade are now deeply linked. What happens in data center budgets increasingly shows up in inflation reports.
