Redfin’s Darryl Fairweather said lenders are pouring money into AI. As a result, there is less capital available for loans for everyday items.
Artificial intelligence is transforming many aspects of how today’s consumers live and work. But now some economists think AI is actually causing interest rates to rise.
Darryl Fairweather, Redfin’s chief economist, explained his thoughts in a post on Monday’s X that delves into economic theory.
The theory is that companies are investing heavily in AI because it has the potential to make things like machines and computers much more efficient. Lenders, on the other hand, will be drawn to companies that are likely to offer higher returns, and that is companies that are currently investing in AI, Fairweather explained.
Interest rates are rising due to AI.
As Big Tech companies borrow billions of dollars for AI, they are locking out homebuyers by raising interest rates.
Important points:
🔹 Neutral rate (r*) increased
🔹 K-shaped recovery: savers win, borrowers lose
🔹Policies can minimize damage pic.twitter.com/VmbLqVKzzO
— Dr. Daryl Fairweather |Chief Economist (@FairweatherPhD) February 16, 2026
“But lenders are realizing that the returns on AI investments are so high that they’re putting all or a lot of their capital into it, so the rest of us aren’t left with as much capital,” Fairweather said.
“This is why it’s more expensive to take out loans for everyday things like mortgages, cars, credit cards, etc. It’s also more expensive for companies to take out small business loans to cover their expenses. So AI investments, these big AI technology companies, they’re kind of siphoning off all the capital, and there’s less capital left for the rest of us. And that capital is now more expensive to acquire through loans because it’s more scarce for the rest of us.”
Fairweather added that in the 2010s, returns on capital were much lower and there was much more money in the economy. As a result, lenders offered cheaper loans, resulting in mortgage interest rates of around 4% just before and during the COVID-19 pandemic.
The Federal Reserve is also responsible for setting the federal funds rate, which is used to balance the economy. When the balance shifts, the Fed could lower interest rates to warm the economy, as it did after the Great Recession. Or the Fed could raise interest rates to cool an overheated economy and stem inflation, as it did after the pandemic.
Fairweather said the Fed is currently aiming for a neutral interest rate, but needs to estimate what that rate will be based on economic data. But Fairweather and other economists say the neutral rate is “fundamentally higher” than it was before the pandemic because the return on capital is also higher than it was before the pandemic. And that could be because of AI, Fairweather said.
“I would argue that AI is the reason why returns on capital and neutral interest rates are currently higher,” Fairweather said. “Because AI has fundamentally changed the rate of return on capital investment. So if this neutral rate is higher than it is now, it means that interest rates on everything, including mortgage rates and credit cards, are going to be higher going forward. Ordinary people are only going to borrow more in this economy than they did in the 2010s.”
This higher neutral interest rate is beneficial for people who hold their money in high-yield savings accounts because they are earning higher returns than they did 10 to 15 years ago. But borrowing is much more expensive for people without savings, and is particularly burdensome for small and medium-sized businesses.
This goes back to another example of how a K-shaped economy might play out, a phenomenon that economists started talking about last fall. In this economy, wealthy individuals continue to get richer, while low-income people continue to fare worse. Fairweather said the same thing is happening in large and small businesses.
“Instead, small businesses are hurting because interest rates have become much higher and borrowing costs are higher.”
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