October 22, 2025
Normally, when the Fed raises interest rates, capex spending goes down.
Since the Fed raised rates in 2022, this has happened for office but not for data centers because data center financings and the AI boom are ultimately financed by the rise in equity prices of the Magnificent Seven, see the first chart below.
As a result, the transmission mechanism for monetary policy has been broken for data centers, and Fed hikes have not slowed down the AI boom.
In other words, what matters for capex decisions are broader financial conditions and not just the Fed funds rate, see also here. That is the reason why there is basically no growth in corporate capex outside of AI at the moment, see the second chart below.
Sources: US Census Bureau, Macrobond, Apollo Chief Economist
Sources: US Bureau of Economic Analysis (BEA), Macrobond, Apollo Chief Economist
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