Quick Read
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If AI lifts productivity fast enough, the Fed could hold or cut rates, easing mortgage costs and supporting stocks well beyond NVIDIA.
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Bond investors are betting against an AI productivity miracle: the 10-year Treasury yield jumped from 5% to 5% as the 30-year hit 5%.
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AI’s construction bills arrive before its payoff, with data centers projected to use up to 12% of U.S. electricity by 2028.
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On Monday at 9 a.m. Pacific, Federal Reserve Chair Kevin Warsh will open a conference at the San Francisco Fed with 15 minutes of remarks. He will then spend most of the morning leading panels with Stripe co-founder Patrick Collison, Stanford economist Nick Bloom, and venture capitalist Marc Andreessen (per the published agenda). The topic sounds academic: how artificial intelligence, and what the Fed calls superintelligence, will change productivity and jobs.
The stakes are concrete. If AI raises the economy’s speed limit, the Fed can let growth run faster without tightening. If it doesn’t, today’s AI building boom starts to look like old-fashioned overheating.
Why Now: Long-Term Rates Just Jumped
The question comes at an awkward moment. The Fed lifted the upper bound of its target range to 4.00% in September, from 3.75%. Real GDP grew at a 3.4% annualized pace in the third quarter, above the 2% to 3% range considered healthy trend growth. In the week ending November 13, the 10-year Treasury yield rose from 4.86% to 5.15%, and the 30-year reached 5.47%. When bond investors demand more to lend long-term, they are signaling doubt that faster growth comes without inflation.
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Warsh’s Unanswered Questions
Warsh has framed the issue himself. At Jackson Hole in August, he said “We’ve come to a hinge point in history,” called AI “potentially a new factor of production,” and asked whether it would “cause a significant, sustained rise in productivity across the economy.” He also asked who ends up with the gains: chipmakers, cloud providers, AI developers, other businesses, or consumers. At his October 28 press conference, he said “Productivity growth is strong and capital investment robust,” while noting that inflation has run above target “for close to six years.” He asked whether AI would bring a rapid productivity miracle or gradual gains, and whether it would make price stability easier or harder to achieve.
