The Zhitong Finance App notes that Adney Research said on Monday that the boom in artificial intelligence (AI) construction, combined with high energy prices, tariffs, and de-globalization, is driving up commodity prices; while stronger capital demand and less supply of national savings are driving up neutral real interest rates.
In an October 19 briefing, the company stated that the US economy has moved from a period of weak growth, low inflation, and ultra-low interest rates after the global financial crisis to a stage of stronger growth, continued inflation, and higher interest rates.
Adney questions whether commodity deflation will return
Adney said that the boom in AI construction, high energy prices, tariffs and de-globalization are driving up commodity prices, and questioned that commodity price deflation will not return soon.
Commodity inflation averaged just 0.2% per year between 2010 and 2019, compared to 1% since 2023. The company notes that both goods and services inflation exceeded 3% in August of this year.
Adney thinks neutral interest rates are higher
According to the report, the AI investment boom is driving spending on data centers, semiconductors, software, and R&D. Overall nominal non-residential fixed investment has grown at an average annual rate of 8% since 2023, compared to 6% between 2010 and 2019.
The company notes that the retirement of baby boomers, tightening immigration policies, and huge federal deficits are putting pressure on national savings. Adney said that savings are more scarce and investment demand is increasing the neutral real interest rate.
Since 2023, 10-year US Treasury yields have averaged 4.2%, while 10-year inflation-protected bonds (TIPS) have averaged 1.9% in real terms, up from 0.4% previously. Adney pointed out that actual US bond yields are not a direct measure of neutral real interest rates, but indicated that the increase is consistent with higher equilibrium real interest rates.
The Federal Reserve may need an additional 50 basis points
Adney estimates that the neutral federal funds rate is between 4.25% and 4.50%. This is higher than the Federal Reserve's current target range of 3.75% to 4% — a range formed after a 25 basis point rate hike in September 2026.
The company believes that when the Federal Reserve cut interest rates by 75 basis points between September and December 2025, it gave too much weight to downside risks in employment, thus keeping interest rates below neutral levels.
Raising interest rates by another 50 basis points will bring monetary policy back to the neutral range estimated by Adney. However, the company believes that it is unlikely that the Federal Reserve will need to enter the restricted area decisively. The reason is that productivity growth under the “Roaring Twenties” scenario should continue to curb unit labor costs.