AI data center spending stays strong even as interest rates rise

In short: Higher interest rates are slowing many parts of the economy, but companies are still spending heavily on AI infrastructure, which can add to near-term inflation.

What's going on

Big interest rates make it more expensive to borrow money. That usually cools off building projects and big purchases. But AI infrastructure, especially data centers (large buildings full of computers), is still getting a lot of investment.

Estimates vary, but they show the same direction. JPMorgan forecasts about $1 trillion in global AI infrastructure spending this year, and Goldman Sachs estimates roughly $581 billion in U.S. AI-related capital spending. These numbers are forecasts, not final totals.

Building data centers takes a lot of scarce supplies and workers. Companies need advanced chips (special computer parts), memory and storage, electricity, construction materials, and specialized labor. When many buyers chase the same limited resources, prices can rise, like a rush on a small number of contractors in one town.

What to watch

Economists say higher rates hit households and many smaller businesses harder than large tech companies, which can keep funding projects they see as essential. That creates a challenge for the Federal Reserve, since rate hikes may not quickly slow this kind of spending.

The inflation impact is not expected to be huge on its own. One estimate cited in reporting puts AI’s contribution at about 0.2 percentage points, mostly in a few categories like electricity and computing hardware. The bigger question is timing, since AI could eventually make businesses more productive and lower costs, but those benefits may take years to show up broadly.

Source: NYTimes