The authors examine whether AI is more likely to raise or lower the neutral interest rate (r*), challenging a growing consensus among central bankers. Contrary to conventional wisdom, they find that since 2023, major AI model releases have generally coincided with lower long-term interest rate expectations, suggesting investors may view AI as increasing demand for safe assets rather than simply boosting productivity.
Does AI Raise or Lower Neutral Rates?
PIMCO
Tiffany Wilding, J. R. Scott
Research
4 Pages
Key Takeaways
AI Signals Lower: Across 43 major AI model releases since January 2023, long-term forward interest rates generally declined instead of rising.
200 bps Difference: Excluding AI release days, cumulative long-term forward yields would have risen roughly 200 bps instead of about 100 bps.
Lower Risk Premiums: PIMCO estimates declining term premia accounted for about 50% of the drop in long-term yields after major AI announcements.
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