AI funding spans bonds, private deals, banks—raising hidden concentration risk as utilities and banks also borrow heavily for infrastructure needs.
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Welcome back to The Weekly Fix. My name is Laurie Mount, Portfolio Manager with RBC’s BlueBay US Fixed Income team focusing on cash management strategies.
The Federal Reserve met last week, and as expected, rates remained unchanged, staying in the target range of 3.50–3.75%. What was unexpected, however, was the level of disagreement within the committee. For the first time since October 1992, there were four dissents—with Governor Miran voting in favor of a 25-basis point cut and Presidents Hammack, Kashkari, and Logan supporting the unchanged target rate but dissenting against an easing bias in the statement. Markets reacted swiftly, with the 2-year Treasury selling off 10 basis points immediately following the announcement.
Adding to the uncertainty, the Fed's post-meeting statement noted that "Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook" and made reference to the increase in global energy prices. This acknowledgment signals that geopolitical risks are now firmly on the Fed's radar.
On the leadership front, ahead of last week's FOMC announcement, the Senate Banking Committee voted along party lines to advance Kevin Warsh's nomination as the next chair of the Federal Reserve. He is expected to be confirmed by the full Senate when they vote next week, ahead of the expiration of Powell's term on May 15th. During the press conference, Chair Powell indicated he will stay on as a governor for "a period of time to be determined" when his term ends—a decision he says is driven by concern about the series of legal attacks on the Fed.
So, what does this all mean for the economy? At this time, the US has remained resilient to the effects of the conflict in the Middle East. Economic activity continues to expand, and unemployment has seen little change in recent months. However, with energy prices increasing across the country, people are beginning to feel the effects. Should this continue, we could see pronounced impacts from rising inflation and slowdowns in growth.
Given this backdrop of uncertainty surrounding the conflict in the Middle East and its potential effects, we believe that the Fed is on hold through the end of the year. Our cash strategies continue to focus on identifying opportunities in floating-rate securities and shorter-duration fixed-rate instruments with maturities under one year, a position we have consistently maintained. We remain vigilant, monitoring Federal Reserve communications and economic data in the coming weeks for more guidance on their expectations moving forward.
Looking ahead, we'll receive the April jobs number on Friday, which may provide some insight into the outlook for the labor market. Thank you for joining us today and have a great week!
Key points
Multi-channel funding wave: Hyperscalers are accessing public bonds, private infrastructure capital, and bank construction loans simultaneously to finance AI data centers and power infrastructure.
Cross-sector borrowing surge: Banks and utilities are also increasing debt issuance—utilities to meet rising power demands, banks to manage capital—compounding market pressure alongside tech.
Hidden concentration risk: What once looked like diversified exposure across sectors and asset classes may now represent overlapping bets on the same AI buildout theme.