Pershing Square Founder Bill Ackman Says Rate Hikes Can't Curb AI Arms Race
Bill Ackman, founder of Pershing Square, stated that the Federal Reserve's decision to raise the federal funds rate by 25 basis points to 3.75%—4.00% may be a mistake. In a public post, he wrote that if old models no longer apply to the current paradigm, central banks may make incorrect judgments. Chairman Kevin Warsh also mentioned after the meeting that investments in AI-related equipment and software have grown nearly 20% over the past year.
Ackman's reasoning is that the returns from winning the superintelligence race are nearly infinite, and the demand for computing power and energy is insensitive to interest rates, meaning rate hikes cannot suppress data center and chip procurement. Additionally, interest costs will be embedded in the supply chain and pricing, driving up the prices of goods and services, creating a cycle of "more rate hikes, more inflation, and further rate hikes." He distinguishes the 2022—2023 cycle as a world before ChatGPT.
Bridgewater's analysis estimates that Alphabet, Amazon, Meta, and Microsoft will invest at least $650 billion in AI-related projects this year, a significant increase from approximately $381 billion last year. Gartner predicts global AI spending will reach $2.7 trillion by 2026, a year-on-year increase of 49.5%. Another investment bank estimates that the capital expenditures of the five largest cloud providers will be around $800 billion to $820 billion in 2026, potentially rising to $1 trillion to $1.3 trillion in 2027, with operating cash flow increasingly unable to cover these costs, leading to a shift towards bonds, project financing, and chip collateral financing.
Mark Zandi, chief economist at Moody's Analytics, also stated before the rate decision that the probability of policy error is "disturbingly high," with inflation around 3.4%, a significant portion of which comes from supply shocks such as energy and tariffs, which rate hikes cannot suppress. To bring inflation back to 2%, either AI investment must be curtailed, or the rest of the economy must be suppressed more heavily. He later noted that rate hikes and rising long-term yields have begun to erode non-tech sectors, while large firms can still absorb interest due to high profit expectations. CME FedWatch indicates that the implied probability of another rate hike in October is about 64%. The sellers are sectors that must roll over financing, such as housing, credit cards, and non-tech capital expenditures, while the buyers are cloud providers and chip chains that are still expanding their balance sheets according to arms race logic; funds are flowing from interest-sensitive sectors to data centers and power. The beneficiaries are platforms that can pass interest costs into cloud pricing, while other demand is pressured by the same interest rate knife.
Source: Public Information
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Ackman is not the first to voice opposition to the Federal Reserve through public posts, but this time his focus has shifted from housing prices and fiscal issues to the interest rate elasticity of capital expenditures. Pershing Square's portfolio is long-term biased towards high-quality cash flow companies, and his argument essentially acknowledges that when investment decisions are driven by the "infinite return narrative," discount rate tools become blunt. Warsh describes the nearly 20% year-on-year growth in AI equipment investment as a support for growth, while Ackman interprets the same figure as evidence of policy failure, highlighting a divergence in the transmission channels rather than the reality of spending.
The capital path has expanded from the operating cash flows of four tech giants to bonds, project financing, and chip collateral. The $650 billion figure only accounts for AI-related investments from the four companies; including Oracle and others, capital expenditures could exceed $800 billion by 2026, with a larger gap in 2027. Money is migrating from equity valuation premiums to credit markets, meaning rate hikes are no longer just impacting startups but also increasing interest expenses for already listed platforms, which then feed back into CPI through rising cloud services and hardware prices. Zandi's framing of the choice as "suppress AI or suppress the rest of the economy" acknowledges that demand-side tools can misfire on employment when faced with supply-side arms races.
Drawing parallels to the 1970s oil shocks when rate hikes could not suppress supply-side inflation, and the effectiveness of rate hikes in 2022 was due to shortages stemming more from commodities and housing credit rather than the arms race logic of the four companies needing to secure the next generation of models. In terms of industry phases, AI spending has moved from "experimental budgets" to a debt phase where external capital is necessary to continue building power and cabinets. Microsoft, Amazon, Google, and Meta are the expanding entities; the sectors truly cooled by rate hikes are manufacturing and household leverage excluding data centers.
Structural judgments belong to the rewriting of monetary policy transmission by technological substitution. The mechanism is that traditional rate hikes rely on increasing the cost of funds to delay deferrable capacity; when the decision function becomes "the loss from losing the race is infinitely large," capacity can no longer be delayed, and interest rates only alter financing structures without changing physical construction. Interest enters electricity prices, server rents, and consumer electronics, creating a cost in the inflation basket that is manufactured by the rate hikes themselves. To bring total inflation back to 2%, this arms spending must decelerate, or other sectors must face a deeper recession. The market's 64% implied probability of another rate hike in October reflects one path after trading.
ABAB News · Cognitive Law
When returns are framed as infinite, interest rates are no longer a brake.
Rate hikes can suppress credit but cannot suppress the arms race.
Once interest is embedded in prices, tightening will self-amplify.