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October 15, 2026
Partner, Chief Economist
Higher interest rates have not slowed the data center buildout. Over the past year, 10-year yields are up 125 bps, yet consensus forecasts for 2027 capex growth have only been revised higher, see chart below.
The reason is that many AI investors expect AI investments to return more than 10%, well above the 4% Fed funds rate. With borrowing costs far below expected returns, the AI spending boom is not sensitive to interest rates, and tighter policy is losing its bite on the economy.
The implication for investors is that upward pressure on rates persists until either the Fed raises rates above expected AI returns, or expected AI returns fall below the Fed funds rate. With the consensus still very bullish on AI, see chart again, investors should expect continued upward pressure on rates.
A Middle East deal after the midterm elections could push yields lower via lower oil prices. But the fundamental direction of travel for rates remains higher, especially with ongoing fiscal challenges and heavy Treasury issuance adding to the term premium.
The bottom line for both public and private markets is that higher for longer continues.
Sources: Bloomberg, Macrobond, Apollo Chief Economist
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