AI boom to keep upward pressure on interest rates, economist says

Torsten Sløk, chief economist at Apollo Global Management, stated on Thursday that interest rates are likely to continue rising due to the ongoing boom in artificial intelligence investments. He noted that AI investments are expected to yield more than 10%, significantly higher than the current Fed funds rate, making AI spending resilient to rising borrowing costs. Sløk wrote in a blog post that this trend suggests upward pressure on rates will persist until either the Federal Reserve raises rates above expected AI returns, or expected AI returns fall below the Fed funds rate. Long-term borrowing costs have increased over the past year, with 10-year Treasury yields up by about 125 basis points. However, Wall Street analysts have continued to increase their capital expenditure views for 2027, convinced that the payoff from AI infrastructure will justify the spending. Sløk also mentioned that ongoing fiscal challenges and heavy Treasury issuance are adding to the term premium, contributing to the expectation of 'higher for longer' rates.