Former New York Fed President Bill Dudley argued in an Oct. 21 Bloomberg Opinion column that AI infrastructure spending may add less to U.S. growth in 2027 while its financing needs keep rates under pressure.
Dudley expects the increase in AI investment to be smaller in 2027 than in 2026. That would mean a smaller contribution to growth, he said, because growth depends in part on how much investment changes. But the scale of ongoing data center and computing projects would still require financing and compete for available funds, sustaining upward pressure on rates in his view.
That pressure could reach beyond technology companies. Dudley said higher rates may restrain housing, purchases of durable goods and business investment outside AI. He also said AI spending and rising stock prices have supported growth and consumer spending, linking the buildout to both economic gains and higher financing costs.
A downturn in his scenario requires spending to peak and then decline. He expects shares to reverse some gains linked to the boom; if that weakens activity, the Fed could cut more than SOFR futures currently price.
The Fed raised its benchmark rate by a quarter percentage point on Sept. 16, setting a target range of 3.75% to 4%. Minutes from that meeting summarized market commentary associating heavy AI-related debt issuance and competition for capital with higher Treasury yields. A couple of participants also discussed whether price increases tied to energy disruptions and AI demand could spread beyond affected sectors. An earlier OCBC assessment of AI financing demand and Treasury yields also linked the buildout to U.S. growth and market pressures.
The Fed’s next policy meeting is scheduled for Tuesday and Wednesday, Oct. 27-28, with its decision due at 2 p.m. ET on Oct. 28.
