The Fed has used one simple mechanism for decades:
more expensive money → less investment → weaker economy → lower inflation.
But now this mechanism faces an unusual problem.
Once the rate hike cycle began in 2022, some investments actually began to decline.
However, others, on the contrary, accelerated.
A prime example is artificial intelligence infrastructure.
Offices are falling, data centers are growing
Since the rate hikes began, investment in office construction in the United States has fallen by about$70 billion to $45 billion.
This is a classic result of tight monetary policy.
High borrowing costs make new projects less attractive.
But at the same time, the construction of data centers has grown from approximately$10 billion to $68 billion.
AI infrastructure is actually moving in the opposite direction.
The difference in the sensitivity of office and data center construction to interest rates. Since the Fed's rate hike cycle began, office construction has declined while data center investment has surged. Source: Apollo, US Census Bureau, Macrobond.
Why AI is not afraid of expensive bets
The main reason is expected profitability.
Companies investing in data centers believe that demand for computing power, chips and cloud services can generate such high profitability that the cost of capital becomes a secondary factor.
In other words:
If the future return of the project is significantly higher than the financing rate, the high cost of money ceases to be a major constraint.
This is why the largest technology companies continue to increase spending on AI infrastructure.
The Fed is losing some control
The problem for the regulator is that one of the main channels for cooling the economy is working weaker.
Typically, rising rates should reduce investment activity.
But now the economy is divided:
traditional sectors are slowing down;
The AI sector continues to invest aggressively.
This makes fighting inflation more difficult.
Why rates may stay high longer
If the investment cycle around AI continues, overall demand in the economy could remain strong.
That means the Fed will have to maintain tight policy longer, even as parts of the economy are already starting to come under pressure.
This creates an unusual situation:
high rates cool the old economy, but the new technological cycle creates additional demand.
Main conclusion
AI has changed the usual logic of monetary policy.
The Fed can still influence the economy through rates, but the effect is less uniform.
Offices and traditional projects are feeling the pressure.
And the artificial intelligence infrastructure continues to grow.
The main question now is:
Will the AI boom be able to offset the pressure of high rates or will it be the reason that the Fed will have to keep policy tighter longer?
