Higher Interest Rates Are 'Likely Here to Stay': Furman

Summary

Jason Furman argues that higher interest rates are likely here to stay because government borrowing above $40 trillion and AI-related corporate capital spending are competing for capital. He says Congress must eventually cut spending, raise taxes, or both to address the fiscal imbalance, but he sees no fix on the horizon. Furman is bullish on AI's long-run productivity potential but warns that near-term AI demand is inflationary and leading AI firms face monetization pressure.

• Furman sees higher rates as the market-clearing result of government and business demand for capital.
• The Treasury's long-end buyback helps tactically but adds pressure to short rates and shortens debt duration.
• The Fed is expected to keep inflation under control by keeping rates higher.
• Furman is bullish on AI productivity but not convinced leading AI companies will monetize it.
• AI-driven demand is currently inflationary, not deflationary.
• Meaningful AI productivity gains may show in aggregate data in one to three years.
• A fiscal fix requires spending cuts or tax increases, but none is on the horizon.