The ongoing surge in artificial intelligence (AI)-related spending could keep inflation elevated in the United States and force interest rates to remain higher for longer, according to Jefferies’ latest Greed & Fear report.
The report said strong spending by major technology companies on AI infrastructure is supporting economic growth but is also adding to inflationary pressures, complicating the outlook for monetary policy.
“One consequence of the stickiness of inflation in America, with headline CPI inflation running at its highest level in three years, is that nominal growth has been running at 5.9 per cent YoY in 1Q26, driven primarily by the still accelerating AI capex arms race,” the report said
.According to Jefferies, financial markets are increasingly factoring in the possibility of further rate hikes as inflation remains persistent.
“The same logic, of course, applies to the US where new Fed chairman Kevin Warsh has presided over a more hawkish message than GREED & fear would have expected in his first FOMC meeting this week,” the report noted.
The report added that investors are now expecting tighter monetary policy over the coming months.
“As a result, money markets are now expecting 36bp of rate hikes by the end of 2026 while importantly, the two-year Treasury yield had its biggest one-day move in 14 months rising by 13bp to 4.18 per cent yesterday,” it said.
ANI
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