AI Boom Fuels Economic Growth, Tightens Warsh's Grip on Inflation
Record corporate profitability and AI investment are fueling the US economy's growth, but also shortening Federal Reserve official Kevin Warsh's patience with inflation.
BMO Chief US Economist Scott Anderson notes that after-tax corporate profits have risen to a record 12.1% of GDP, nearing $4 trillion at an annualized rate, and increasing 20% from last year.
The AI investment boom is also gaining momentum, with BMO expecting real business equipment spending to grow 11% in 2026 and 7.5% in 2027, helping lift its 2027 GDP growth forecast to 2.2%, slightly above the economy's long-term potential.
Warsh has shifted the burden of proof for inflation, requiring it to demonstrate a clear and quick move towards target before the Fed can justify keeping interest rates on hold.