TS Lombard: The Fed Is Behind the Curve and Should Raise Rates to Curb the AI Bubble
Claire Weston
TS Lombard chief economist Freya Beamish is calling on the Fed to raise rates, arguing that AI-driven leverage is piling up — and the bond market already prices a 50% chance of a July hike.
Why does she say the Fed is "behind the curve"?
Beamish told Bloomberg TV the U.S. economy is running on "two tracks" — a surging tech sector and a visibly weaker rest.
She argues overall resilience gives the Fed room to tighten now.
This means → her logic is not "the economy is too weak to hike." It is the opposite: the economy is strong enough, so act now before AI leverage snowballs further.
How many hikes is she forecasting?
Beamish expects the Fed could raise rates up to five times within the next year.
In plain terms = at 25 basis points per hike (a basis point is one-hundredth of a percentage point), that is another 1.25 percentage points — a substantial tightening.
Her core concern is the speed of leverage accumulation — borrowing to pile into AI bets — not traditional inflation pressure.
What about inflation? Does the Middle East matter?
Beamish said Middle East developments have not changed her U.S. inflation call.
Her words: "The U.S. inflation story was never about this external shock — it is about domestic inflation gradually heating up and stubbornly refusing to come down."
This reflects a focus on structural domestic price pressure, not short-term geopolitical noise.
Is the bond market already pricing this in?
Earlier on Tuesday, bond traders placed heavy bets on a July Fed rate hike.
Two catalysts are imminent: Fed Chair Kevin Warsh testifies before Congress + CPI data drops.
Market pricing now puts the probability of a July hike at roughly 50% — this means → traders have shifted "rate hike" from a tail risk to a coin-flip bet.
What is the core dilemma?
Beamish's call points to a catch-22: if the Fed stays put, AI-fueled leverage could morph into a larger financial risk.
If it launches consecutive hikes, the high-valuation logic underpinning the tech sector faces a direct hit.
Put simply = do nothing, and the bubble may keep inflating; act, and the stocks that rose the most — AI names — get hit first.
Content is for reference only, not financial advice.