AI pullback gives crypto a plot twist: risk-off now, rate relief later

A pullback in artificial intelligence stocks could ease the Federal Reserve’s inflation fight by slowing the data center construction boom that BMO Capital Markets senior economist Jennifer Lee said was contributing to higher borrowing costs. Lee shared her view on Bloomberg This Weekend on November 1, noting that the downturn could take some pressure off US interest rates.

Lee said hyperscalers’ demand for large sums to finance data centers was one factor driving interest rates higher, alongside elevated energy prices and fiscal concerns. The building boom also diverted land, skilled workers and materials from other sectors, adding to inflation and potentially keeping it elevated for longer. The Nasdaq-100 entered its third correction of 2026 last week, while the S&P 500 fell 1.8% on Friday.

“So if they’re pulling back a little bit, it shows that there could be some cool down in this… All this demand, all this building of the data centers, and that would actually help the Fed’s job and to bring inflation down,” Lee said. US Treasury buyers may also be less dependable than before, weakening demand for the assets.

The selloff reaches crypto through risk appetite and interest rates. BitMine Chairman Tom Lee tied the recent crypto decline to the AI selloff in the company’s October 26 release. “Crypto got pulled down by the same ‘risk-off’ forces behind the AI sell-off. In contrast to late-2025 and early-2026, crypto pullbacks have been comparatively shallow. ETH has fallen 13% from its recent peak while US semiconductors ($SOXX) is down 20% in that same timeframe,” Tom Lee noted.

Lower yields could eventually make bonds and cash offer smaller returns, leaving assets such as Bitcoin ($BTC) and Ethereum ($ETH) relatively more attractive, although the risk-off effect arrives immediately. The Fed raised rates by 25 basis points on September 16 and held them at 3.75% to 4% on October 28, with 2 officials voting for another hike. Lee called Chair Kevin Warsh’s press conference fairly hawkish and said a December tightening sounds like a foregone conclusion. This week’s payroll report and earnings from Apple, AMD and Qualcomm will test whether the cooldown holds.