Recent volatility in artificial intelligence (AI) stocks has led to a broader market pullback and prompted discussions on potential impacts for inflation and the Federal Reserve’s policy direction. The rapid selloff has diminished risk appetite among investors, with both equities and cryptocurrencies experiencing notable declines over the past week.
AI stock pullback linked to construction and inflation
BMO Capital Markets senior economist Jennifer Lee stated on Bloomberg This Weekend that a slowdown in data-center investment could help ease construction demand and, over time, reduce upward pressure on inflation. Lee emphasized that reduced AI infrastructure spending might cool the demand for materials, labor, and energy, all of which contribute to higher prices.
Major US stock indices saw sharp declines as the S&P 500 dropped 1.8% and the Nasdaq Composite lost 2.9% on October 30, marking the worst session for equities since June, according to the Associated Press. The broader market weakness has filtered through to digital assets, with key cryptocurrencies also facing headwinds.
Recent comments by BMO Capital’s Jennifer Lee highlighted that slower data-center projects could eventually temper inflation by reducing demand pressures, though any effect may take time to appear.
Mini dictionary: BMO Capital Markets is a North American financial services provider that offers research, investment, and advisory services to institutional and corporate clients.
Federal Reserve decision and data-center expansion
The Federal Reserve left its benchmark interest rate unchanged at 3.75% to 4% on October 28, with two officials expressing support for a 0.25 percentage point increase, Axios reported. While not an immediate policy shift, the central bank’s pause was seen as a response to evolving economic data and ongoing uncertainty around inflation.
A Federal Reserve research post published in September assessed the impact of data-center construction on price trends. The study estimated that extensive expansion could add between 0.04 and 0.13 percentage points to annual US PCE inflation by 2030, citing the electricity component as a main driver. The report described these findings as tentative given the limited historic precedent for such rapid growth in data-center infrastructure.
Chicago Fed President Austan Goolsbee explained in September that robust data-center development could add to aggregate demand and inflation. He also warned that higher interest rates could slow business investment and construction activity.
| Event | Date | Key Details |
|---|---|---|
| Fed rate decision | October 28 | Held at 3.75% to 4%, 2 officials favored hike |
| S&P 500 daily drop | October 30 | -1.8% |
| Bitcoin price | November 2, 14:13 UTC | $77,821, down 0.1% in 24h |
| Ether price | November 2, 14:13 UTC | $2,286.43, up 0.9% in 24h |
Market impact for crypto and equities
Tom Lee, chairman of BitMine, connected the recent weakness in cryptocurrencies and AI-related stocks to a shift away from risk, observing that Ether had fallen 13% from its recent peak while the semiconductor-focused ETF SOXX was down 20% during the same timeframe. This parallel performance suggests a common risk-off sentiment affecting multiple asset classes.
Crypto markets have reacted unevenly as risk appetite declined. By 14:13 UTC on November 2, Bitcoin traded at $77,821, reflecting a 0.1% intraday retreat and a 2.91% loss over the past week. Ether stood at $2,286.43, showing a 0.9% increase for the day but a 1.49% drop over seven days, according to CoinGecko.
Tom Lee pointed to the simultaneous declines in Ethereum and semiconductor ETFs as evidence that risk aversion is not limited to a single market segment, but rather echoes across both crypto and AI stocks as investors turn cautious.
Mini dictionary: BitMine is a publicly traded company focused on blockchain infrastructure and digital asset mining solutions.
Upcoming events and outlook
Investors are closely monitoring upcoming US payroll data and earnings reports from major technology firms such as Apple, AMD, and Qualcomm for further indications on the health of the technology sector and its broader economic effects. These results are expected to shed light on whether the recent cooling in spending will be sustained or if investment will rebound.
While equity market declines have contributed to risk aversion in crypto, potential future easing of monetary policy could support cryptocurrency demand. Analysts note, however, that any inflation relief from stalled AI construction projects will depend on multiple factors, including energy prices and economic conditions, and is unlikely to be immediate.
