Benzinga - by Shanthi Rexaline, Benzinga Editor.
OpenAI co-founder and CEO Sam Altman offered a different perspective on the trajectory of interest rates in the context of abundant breakthrough innovations.
What Happened: Altman on X said his view on interest rates had changed lately.
“‘When the capitalists have run out of ideas, the interest rates will go to zero' seemed like a very interesting observation to me over most of the last decade,” he said.
However, with innovation accelerating in this decade, Altman is now interested in the opposite scenario. “But now i am interested in the inverse. When we have more and better ideas than ever before, what will happen to rates?”
Altman presented a scenario to examine interest rate trajectories, asking, “At what rate should you be willing to borrow money to build a data center if extremely powerful AI is close at hand?”
‘when the capitalists have run out of ideas, the interest rates will go to zero' seemed like a very interesting observation to me over most of the last decade.but now i am interested in the inverse—when we have more and better ideas than ever before, what will happen to rates?
— Sam Altman (@sama) December 25, 2023
Responding to Altman, Ram Ahluwalia from hedge fund Lumida Wealth suggested that interest rates would go higher, reflecting higher real returns.
Michael Eisenberg, the co-founder of the venture capital firm Aleph, added that in a zero-interest-rate environment, everything gets funded. “When rates rise, mediocre ideas and companies go bankrupt, talent is recycled and reallocated, coalescing into incredible innovation,” he said. “Exponentially true in [an] era of tech breakthroughs and war.”
Why It Matters: Interest rates are fundamentally tied to the demand and supply of money in the market. When demand for funds increases, interest rates tend to rise, often associated with robust corporate and government investments.
The Fed funds rates were near zero levels in the aftermath of the 2007-08 recession and began rising in December 2015. The monetary policy normalization that ensued led the rates to a cycle peak of 2-2.50% in December 2018. After maintaining stable rates until July 2019, the Fed started reducing them to near-zero levels again in March 2020.
Rates remained at extremely accommodative levels until March 2022. The Fed initiated an aggressive rate-hike cycle since then, reaching a 22-year peak of 5.25%-5.50% in June 2023.
Source: New York Federal Reserve
The AI revolution, exemplified by OpenAI’s ChatGPT, powered by the GPT large-language model, has triggered a wave of innovation. Despite the costs associated with disruptive innovations, they are expected to prove cost-effective in the long run.
Ark Investment Management CEO Cathie Wood said in October that five multiple innovation platforms — robotics, energy storage, AI, blockchain technology, and multiomic sequencing — are evolving simultaneously. Wood anticipates these disruptive innovations to quadruple the productivity of knowledge workers globally, leading to accelerated real GDP growth worldwide, potentially reaching 6-9%, primarily driven by increased productivity.
The Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ) climbed 0.77% to $28.61 on Tuesday, according to Benzinga Pro data.
Read Next: ‘iPhone Is Going To Be Just Fine:’ Munster Sees No Hit To Apple’s Flagship Product Amid Rumors Of Design Exec Joining Altman And Ive’s AI Project
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