ECB Economist Links AI Investment Boom to Rising Bond Yields

European Central Bank (ECB) chief economist Philip Lane has identified artificial intelligence (AI) as a key global factor driving up bond yields, citing heavy U.S. investment in the technology. In an interview with Italian news agency ANSA, Lane noted that AI is boosting world trade this year, particularly in semiconductor chips and other materials. He also mentioned that Europe plays a role in the AI supply chain, though to a limited extent. The surge in U.S. investment is contributing to higher long-term yields, which Lane said could slow the euro zone economy and lower inflation.

Lane emphasized that higher long-term rates, especially when influenced by global factors rather than European ones, have independent effects on the economy. The ECB will consider these effects alongside its inflation and risk analysis when setting policy rates. He also addressed energy prices, stating that high costs have not yet led to strong second-round effects on inflation. Lane cautioned against simplistic assumptions about the euro zone's economic scenario, noting that the energy shock has been the primary driver of recent rate increases.

Discussing fiscal support, Lane highlighted that 2023 benefits from Germany’s infrastructure and defense programs, as well as the final year of the EU’s Next Generation recovery fund. Regarding Italy, where inflation recently stood at 4.1%, Lane advocated for targeted support for low-income households, warning that broad fiscal expansion could hinder inflation returning to 2% in a timely manner. He also noted that the ECB’s September projections show Italian wages outpacing inflation in 2027 and 2028.

Lane defended the ECB’s rate increases, arguing that persistent inflation of 3% or 4% would be damaging for households and could push long-term rates higher. He advised governments to account for higher borrowing costs in budget planning and prioritize growth-boosting reforms.