Stock Market Impact: Citi warns that a reversal of AI‑related capital expenditure could depress US real GDP below 1% and trigger equity market declines, which would in turn dampen consumer spending.
Listed Companies and Sectors: The analysis highlights the technology sector, specifically AI‑driven hardware and software investments, as a major driver of growth; a slowdown would affect firms reliant on AI infrastructure spending.
Investment Flows: No direct commentary on foreign direct or portfolio investment flows, but the potential GDP slowdown may influence investor sentiment toward US assets.
Interest Rates, Inflation, and Liquidity: April CPI recorded sharp price spikes for memory hardware due to supply constraints and high demand; the CPI’s “Computer Software and Accessories” component carries minimal weight, whereas the PCE price index amplifies the effect by using hardware spikes as a proxy for broader technology goods. These price dynamics feed into inflation considerations for the Federal Reserve.
Fiscal or Monetary Policy: New Federal Reserve Chair Kevin Warsh, sworn in this week, is expected to continue the shift toward reduced forward guidance and removal of the implicit easing bias, as signaled by Fed Governor Christopher Waller. The June FOMC meeting is anticipated to reflect these structural changes, with high‑frequency labor data showing low initial jobless claims, leaving the broader outlook unchanged.
