Gita Gopinath

So that's the difference between what's happening to real rates versus what's happening to nominal rates.

And what's happening to the pricing of the Fed rate path, right?

So the first channel that you mentioned, which is just the fact that there is so much of demand from the private markets, from AI investors, AI companies for capital, is going to raise real rates, even if there is no effect on inflation or inflation expectations are not moving.

should expect to see real rates rise.

And that's certainly, we're seeing some of that.

And then the other is the effect that's working through the demand for the different inputs that go into AI, and that's creating an inflationary pressure, which would then need higher nominal rates

And that is also playing out.

I think right now, I suspect that the real rate piece is more important.

The inflationary part is being driven a lot by what's happening with energy prices and the pass-through from energy prices into also core inflation.

So I think that's the more of the higher inflation, higher rate path story is coming from other forces on inflation as opposed to what's coming from

AI itself.

And then you have the real rate path, which is going up also because of the general risk environment that we're in, but also because of what's coming from this increase in capital demand coming from the AI sector.

So, I mean, what matters crucially is what we believe are the main drivers of our star at this moment.

Is it coming because of higher productivity growth, which is then

leading to higher investment and therefore demand for capital.

All of that is good as a kind of good kind of increase in our star because that's an economy that is projected to grow at a faster rate.

And that helps.

That helps on many fronts, including in terms of bringing debt to GDP down.

The other reason our star is going up is because of the increase in fiscal deficits.

and just general high levels of government borrowing in the US, that is less appealing because that tends to be not necessarily growth enhancing, that the money that's being raised is not for productive, necessarily productive infrastructure investment that's gonna generate enough growth.