Powell – unlike the dotcom boom, AI spending isn't a bubble

I think I get what Powell’s laying down, here, from an economics perspective. His data shows that a non-zero number of major players in the AI space are posting earnings, not just revenue, and that this is a sign of healthy economic activity. He’s also saying that while CAPEX investment today is coming primarily from corporate books (and not major banks), he’s also stressing that these investments have a long, uncertain tail - and that at present, between lofty promises from AI companies and executives eager to hoard capital, that the job market is seeing significant negative impacts that have zeroed out job growth while capital growth remains on a rocket ship to the stratosphere.

As someone who follows the man’s speeches and comments, I’ve always found that the real message is between the lines of what he says, especially for things he cannot say explicitly. So reading his comments here, my takeaways are:

* Zero job growth is a serious concern, especially as companies and business elites continue to demand a return to ZIRP

* Inflation also remains a concern in that same context, as it continues to skyrocket for essential goods

* Even if this AI investment is highly speculative and collapses, its “blowback” is broadly contained vis a vis the AI “sphere” being a handful of companies in circular investment schemes, not mass public buy-in like prior bubbles

* His immediate concern remains trying to figure out how to address rising inflation, stagnant wages, and negative/zero job growth in the face of a red hot securities market and continued trade uncertainties. The only levers left to pull will disproportionately hurt the working class even further, and he seems to continue suggesting that this isn’t an issue the Fed can solve absent Congressional intervention (which, let’s face it, ain’t happening)

That’s my takeaway from his comments this year, and it fits my own perspectives on the AI Bubble (in that yes it’s a bubble, but it’s a highly concentrated bubble that’s painting over broader harms and misleading public officials about the state of the economy). Being head of the Fed, he can’t come right out on either side of the fence and call AI a bubble or a real boost, hence why he’s couching comments deeply within economic terms alone.

Just my two cents, anyway.

I think your take makes sense. Thanks for laying it out. I worry about the containment aspects of this. Sure, the capex for this is coming off corporate balance sheets, but a bad event could wipe away a lot of stock market value, which would trigger a deep recession given that AI spending is really the only thing keeping our economy afloat at the moment. It feels like we’re in a doomed if we do, doomed if we don’t moment. I see breadlines in our future whether or not we achieve AGI. The only question is whether or not we’ll have to deal with some added existential risk.