Warsh's Patience Wears Thin Amid Record Profits and AI Boom
Record corporate profitability and accelerating AI investment are lifting the economy but also shortening Kevin Warsh's patience with inflation. BMO estimates that after-tax corporate profits are approaching $4 trillion annualized, rising 20% from a year ago and reaching a record 12.1% of GDP.
The labor market has moved closer to balance, productivity has strengthened, unit labor cost growth remains historically subdued, and supply chain pressures have eased since the opening phase of the Middle East conflict.
AI investment is becoming a direct growth engine, with BMO expecting real business equipment spending to rise 11% in 2026 and 7.5% in 2027. This has lifted its 2027 GDP forecast to 2.2%, slightly above its estimate of the economy's long-term potential.
Kevin Warsh said he is 'hard pressed' to call financial conditions restrictive, pointing directly to rapid business investment, elevated capital spending expectations, and strong corporate earnings.