Something Big Is Happening

The report critiques the 'Warsh-Bessent Accord' which seeks to use AI productivity as a justification for lower interest rates, arguing that this strategy misinterprets 1990s history. It warns that AI may actually increase the neutral rate of interest and that current supply constraints like tariffs prevent a return to the disinflationary 90s.

Key Takeaways

• 1.The market is increasingly worried that massive AI infrastructure spending ($600bn) may yield poor returns and disrupt existing software business models.
• 2.Fed chair nominee Kevin Warsh intends to emulate Alan Greenspan's 1990s strategy of keeping rates low to accommodate tech-driven productivity gains.
• 3.Historical evidence suggests productivity booms can actually be inflationary or lead to higher interest rates ($r^*$) due to increased investment and wealth-driven consumption.

Table of Contents

• Macro Picture - Chart Story
• SOMETHING BIG IS HAPPENING
• Macro Picture
• THE WARSH-BESSENT ACCORD
• NINETIES REMIX
• SUPPLY-SIDE REVOLUTION
• Disclaimer

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