Exclusive: WestCap Founder Warns High Rates Could Slow AI’s Trillion-Dollar Buildout
By Jacqueline Policastro | Quincy News Correspondent
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Washington (Quincy News) — High borrowing costs are “one of the largest threats to the AI buildout,” WestCap founder Laurence A. Tosi told Quincy News in an exclusive interview Tuesday.
Tosi had just addressed a Georgetown University audience about the industries artificial intelligence could transform next. Speaking one-on-one afterward, he focused on what could hold that expansion back.
“The underlying reasons for high rates are very stubborn at the moment,” Tosi said. “I think the systemic problems that we have with energy prices and cost of living are here to stay.”
Tosi, a former chief financial officer of Airbnb and Blackstone, is managing partner and founder of WestCap, an operating equity investor with $6 billion in assets under management and 38 portfolio companies.
His warning comes as the Federal Reserve prepares to announce its latest interest-rate decision Wednesday. The central bank is widely expected to leave its target range at 3.75% to 4%, one meeting after raising rates by a quarter point. Economists expect a hold Wednesday and forecast another increase in December. The decision is due at 2 p.m. ET, followed by Warsh’s press conference at 2:30 p.m.
But Tosi believes a one-meeting pause would do little to change the forces keeping capital expensive.
“Already spreads are widening across the AI trade,” he said, citing “an unusual amount of correlated systemic risk” among those that need access to markets to finance the buildout.
Tosi argued that reliance on overlapping sources of financing could leave multiple parts of the AI industry vulnerable at once. Credit spreads represent the additional yield investors demand above benchmark rates. When those spreads widen, they can increase the cost of financing data centers, chips and power projects.
The Fed has flagged similar pressures. Minutes from its September meeting noted heavy private-debt issuance for AI infrastructure was contributing to higher Treasury yields, while spreads on debt issued by major cloud-computing companies remained wide because of the volume and duration of the borrowing.
Tosi said even a modest rate increase can slow how quickly “trillions of dollars” in forward commitments are deployed.
“The difficult thing is,” he said, “I can’t see a way out of it.”
At Georgetown, Tosi used two words to describe his own approach: “First principles.”
Warsh has used the same phrase to frame his effort to reassess how the central bank approaches inflation, economic data, productivity and technological change. In July, he told Congress that five Fed task forces had been directed to “start with first principles,” ask hard questions and reconsider existing practices. One is studying the impact of AI and other general-purpose technologies on productivity and jobs.
Tosi praised Warsh’s early approach to the job.
“I think the chairman’s early meetings and comments have been very balanced,” Tosi said. “I think people were worried that the job would be politicized.”
He said Warsh is experienced and “legitimately cares about the cost of living and inflation and the damage that that can do broadly to Americans.”
“He’s not focused on a short-term outcome,” Tosi added. “And that’s the only way to contain the issues we’re dealing with.”
Tosi said the challenges extend beyond monetary policy, pointing to the federal deficit, government spending and multiple overseas conflicts.
“The problem is, the issues we’re dealing with are intractable,” he said, adding that reversing course will require “a lot of policy power.”
Tosi also criticized tax cuts not matched by spending reductions.
“It’s cutting taxes to curry favor, but you’re not cutting expenses,” he said. “And as any business person knows, that’s not going to work.”
Tosi said Warsh has shown independence, but the broader problems will require action beyond a single Fed decision.
“We have to solve these problems,” he said.
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