AI Infrastructure Spending Pushes US Inflation and Interest Rates Higher

Nominal growth reached 5.9% year-over-year in the first quarter of 2026, a spike driven largely by the AI investment boom. This persistence has prompted a hawkish shift from new Federal Reserve Chairman Kevin Warsh, whose recent FOMC comments caught many observers off guard. Markets are now pricing in 36 basis points of rate hikes by the end of 2026, while the two-year Treasury yield recently jumped 13 basis points to 4.18%—the largest single-day move in over a year.

While inflationary pressures remain broad-based, equity investors appear to be looking past the macro risks. Earnings expectations for the S&P 500 have surged, with second-quarter 2026 growth now projected at 22.8%, nearly double the 12.8% forecast from last October. Jefferies warns, however, that this market optimism relies heavily on a narrow cluster of tech giants. As long as capital expenditure remains unchecked and earnings revisions stay positive, the market remains tethered to the AI cycle, even as business price expectations continue to climb across the wider economy.