Dutch disease refers to the economic concept in which a sudden boom in one part of the economy slams into another with unintended consequences. Usually, the term has been used among economists to explain why oil-rich countries undergo a sharp increase in currency value, which harms export-heavy sectors like agriculture since trading partners can no longer afford to buy their goods.
Slok continued: “Trapped between inflation driven by the AI boom and weakness in rate-sensitive industries, the Fed will have to keep interest rates higher for longer,”
The ‘durable fix’ to AI’s Dutch disease
Slok argued that adjusting monetary policy alone isn’t enough to level out an imbalance in the U.S. economy. He offered one solution as a “durable fix,” which is to “expand the supply of power, chips and infrastructure” so bottlenecks are less likely when corporate appetite for AI-related equipment is going gangbusters.
Indeed, many experts have long attributed a slowdown in new home construction as a key factor causing housing’s longstanding affordability crisis. AI could be complicating the financial landscape for housing: Some economists have pointed out that private-sector spending on data centers and the supporting AI hardware surpassed residential housing investments for the first time in the second quarter of 2026.
In late May, Slok explained how he believed this data center buildout was different compared to other debt-heavy spending sprees. Chiefly, he pointed to how rising interest rates will do little to tame the appetite among hyperscalers to slow down their spending.
“It doesn’t matter what the Fed does,” Slok wrote at the time. “There is [fear of missing out] among hyperscalers, and AI spending is not sensitive to interest rates.”
Slok said investors weren’t expecting AI-related capital-expenditures to slow next year, even in an environment punctured by higher interest rates from the Federal Reserve. Prominent chief executives believe the same thing. JPMorgan Chase CEO Jamie Dimon recently predicted that AI spending could top $1 trillion next year, a sharp increase from the $700 billion level set this year among AI giants.
“The bottom line is that rates can continue to move higher because rate hikes are not slowing the economy and inflation, as the textbook would have predicted,” Slok wrote in May.
