AI Spending Adds 1.5pp to US GDP, Warsh Set to Remove Easing Bias
C•Citi research projects US GDP growth at 2-3%, with AI capex contributing 1.5 percentage points to GDP and warning of sub-1% growth if AI investment reverts, potentially pressuring loan demand. New Fed Chair Kevin Warsh will remove the easing bias at June FOMC, likely raising funding costs for banks.
1. US Growth Fueled by Consumer Spending and AI Investment
Recent data show real GDP expanding at a 2%–3% pace, with roughly half driven by consumer spending and the remainder by AI-related capital expenditures. AI capex has climbed by over 1.5 percentage points of GDP in two years, marking a structural shift in growth drivers.
2. Risks if AI Capex Reverts to Historical Trend
Citi warns that a reversion of AI spending to pre-boom levels could push real GDP growth below 1% or into contraction, potentially triggering equity market declines and reducing consumer borrowing. Although AI infrastructure buildout has not spurred significant hiring, banks may face weaker credit demand and higher provisioning.
3. Fed Policy Shift Under Chair Warsh
Kevin Warsh’s June FOMC will eliminate the Federal Reserve’s implicit easing bias, signaling less forward guidance and a potential uptick in short-term rates. For lenders like Citigroup, this shift could raise funding costs and compress net interest margins despite stable labor market data.
