Fed's Warsh Flags AI Investment Sensitivity to Rates as Policy Path Stays Uncertain

Federal Reserve Chair Kevin Warsh said high interest rates are beginning to weigh on AI investment while economic growth is broadening beyond AI, forces that could push rate policy in opposite directions, The Wall Street Journal's Nick Timiraos reported. The Fed held rates steady Wednesday, with markets widely expecting a December hike. Warsh disputed the view that AI investment is immune to rate increases, noting investors have grown more selective and borrowing costs for riskier firms have climbed since last month's hike. As tech companies rely more on bond and equity markets for funding, expansion once covered by internal cash is now more exposed to financial conditions, he said. Barclays' Marc Giannoni said data center operators and construction firms often need financing, making debt rates critical. UBS's Jonathan Pingle said the Fed effectively needs "two sets of rates"—one for the AI boom and its wealth effect, another for the rest of the economy. Warsh also said strong growth, which is spreading across industries, may not necessarily spur inflation. BNY's Vincent Reinhart read his stance as requiring further action, but of limited magnitude. During Warsh's remarks, investors cut bets on next year's hikes while long-term Treasury yields edged higher, signaling long-run inflation concerns.