Cooling AI Spending Could Give Fed Room on Rates

BMO economist Jennifer Lee says a slowdown in AI build-out could loosen financial conditions, though this is an analytical projection rather than a measured outcome.

Updated on Nov. 1, 2026 in Artificial Intelligence

Isometric editorial illustration of coiled copper cooling pipes beside a single tower-shaped unit in oxblood, teal, and mustard, evoking industrial AI infrastructure. — BMO Capital Markets economist Jennifer Lee said a slowdown in AI data center and chip spending could loosen financial conditions and give the Federal Reserve more room on rates. AI Illustration. Upload story photo >

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BMO Capital Markets economist Jennifer Lee argued that a cooling of AI spending could give the Federal Reserve more room on interest rates and inflation. Heavy AI investment has helped push rates and inflation pressures higher, and the development discussed is an economic analysis rather than a shipped technology.

Why it matters

AI infrastructure spending now sits at the center of U.S. monetary conditions, since building data centers and buying advanced chips requires enormous sums that compete for capital and energy. Because AI spending is less sensitive to borrowing costs than other sectors, large tech firms have kept investing despite expensive credit, which feeds the pressure on rates the Fed is trying to manage.

The evidence is a qualitative economic assessment rather than a measured dataset, so no benchmark or spending figure is available in the source. The analysis rests on the observed pattern that mid-September selloffs in Nvidia, AMD, Intel, Meta and Alphabet coincided with unexpected inflation and Treasury yield increases, and what remains unknown is the size of any spending moderation.

The players

BMO Capital Markets

A Canadian-headquartered investment bank whose economist Jennifer Lee published the analysis on AI spending and Fed policy.

Federal Reserve

The U.S. central bank that sets domestic monetary policy and is the institution whose rate and inflation room could be affected by AI spending.

Nvidia

A leading maker of AI accelerator chips whose shares were among those hit by mid-September selloffs.

The details

Building AI data centers and buying advanced chips demands very large amounts of capital, and that investment simultaneously pulls on energy, labor and financing. The result is a demand shock that spreads beyond the technology sector, since the same spending that drives chip orders also raises the broader cost of money. Structural demand for AI infrastructure is tied to labor shortages and a growing need for automation, which is why spending has continued even as borrowing grows more expensive.

Mid-September 2026: sharp selloffs hit AI-linked chipmakers and hyperscalers, including Nvidia, AMD, Intel, Meta and Alphabet.
November 1, 2026: Jennifer Lee spoke on Bloomberg This Weekend about AI spending and the Federal Reserve.

The Tech Race

The mid-September selloffs and the earlier tech-related selloffs this year show AI-linked chipmakers and hyperscalers moving together as a group, which makes their spending a macro variable rather than a sector-only one. Jennifer Lee's argument positions a slowdown in that same AI build-out as a lever for the Federal Reserve, tying the competitive buildout by Nvidia, AMD, Intel, Meta and Alphabet to the central bank's inflation fight.

Households and borrowers feel the effect indirectly, through the interest rate and inflation path the Federal Reserve sets, which the source says could loosen if AI spending moderates. The source gives no timeline for when any such moderation might occur or what it would mean for specific loan or savings rates.

The takeaway

The central trajectory point is that AI infrastructure spending now moves rates and inflation, not just tech stocks. Watch whether the Federal Reserve's next policy statements reference AI-related investment as a factor in financial conditions.