Macroeconomic Indicators & Trends
Why Higher Rates Are Slowing the Economy Less Than in Past Cycles
About the Author
When the Fed began hiking in 2022, traditional rate-sensitive sectors, including office construction, rolled over quickly, see chart below
But data center construction continued to surge as investors and hyperscalers judged that AI-driven returns would exceed the higher cost of capital
High expected returns and strategic capacity needs have made AI spending largely indifferent to higher interest rates, blunting one of the main channels through which tightening normally slows activity
Combined with the growth impulse from the One Big Beautiful Bill, the industrial renaissance and prospective tariff refunds, all largely rate-insensitive, we expect growth to remain firm
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