Fed Chair says interest rates still shape AI investment boom

Federal Reserve Chair Kevin Warsh said on Wednesday that higher interest rates continue to influence artificial intelligence investment, pushing back against the idea that the sector is insulated from monetary policy. The Fed held its benchmark interest rate steady at 3.75% to 4.00%, citing the need for more economic data while inflation remains elevated and growth stays strong.

Warsh stated that interest rates affect almost everything in the economy, including which AI projects attract financing and how much capital they receive. He noted that higher financing costs can weaken project economics for data centers and computing infrastructure, making investors more sensitive to execution risks and demanding higher returns.

The Fed’s decision to hold rates steady comes as the central bank balances strong economic growth against persistent inflation. While some economists suggest patience is warranted with labor markets balanced, Warsh cautioned that broadening capital spending beyond the tech sector complicates the task of containing price pressures.

Read the full story at Fortune.