When the Fed's hawkish turn meets the AI capital frenzy: How will the $725 billion investment gamble reshape Bitcoin and risk assets?

In June 2026, the global capital markets are experiencing a rare double squeeze.

On one side is the hawkish debut of new Federal Reserve Chair Kevin Warsh—the June FOMC meeting kept the federal funds rate unchanged at 3.50% to 3.75%, but the dot plot reversed from "12 officials supporting rate cuts" to "9 officials supporting rate hikes" in just three months. The 10-year Treasury yield climbed to around 4.5%, a new high since geopolitical conflicts erupted.

On the other side is the escalating AI arms race. The combined capital expenditures of four tech giants—Amazon, Microsoft, Alphabet, and Meta—are projected to reach $725 billion in 2026, a 77% increase from $410 billion in 2025. This largest corporate investment plan during peacetime in human history is now colliding head-on with a tightening monetary environment.

Two trends converge in mid-2026: rising interest rates increase the cost of capital for all risk assets, while massive AI capital spending is consuming unprecedented cash flows at tech giants. Who will crack first? The answer depends on a core variable—when financing costs rise amid rigid capital expenditures, how will the market reprice risk?

March to June: The 180-Degree Turn of the Dot Plot

On June 17, 2026, Warsh chaired his first FOMC meeting as Fed Chair. The rate decision itself was a foregone conclusion—unanimous 12-0 vote, the fourth consecutive hold at 3.50% to 3.75%. The real shock came from the dot plot.

On the March dot plot, none of the 19 Fed officials expected a rate hike in 2026, with the median rate forecast at 3.4% and as many as 12 expecting a rate cut this year. By June, the situation had completely reversed. Warsh himself did not submit a rate forecast—a continuation of his long-held reservations about the dot plot. But among the 18 officials who submitted forecasts, 9 expected a rate hike in 2026—3 predicted one hike, 5 predicted two hikes, and 1 predicted three hikes. Only 1 still expected a rate cut this year.

The median expectation for the federal funds rate at end-2026 was revised up from 3.4% in March to 3.8%. The median expectations for 2027 and 2028 were also raised to 3.6% and 3.4%, respectively. Bank of America was more aggressive, expecting the Fed to hike by 25 basis points each in September, October, and December, for a total of 75 basis points.

This turnaround was supported by two sets of data: U.S. CPI in May rose 4.2% year-over-year, driven mainly by an energy price rebound; May nonfarm payrolls added 172k jobs, far exceeding expectations, while the unemployment rate remained low at 4.3%. With high inflation and stable employment, the Fed naturally had no reason to cut rates.

Warsh himself changed the market's policy expectation framework on three levels. First, the policy statement was significantly shortened from 341 words to about 130 words, deleting all forward guidance implying possible future rate cuts. Second, he heavily emphasized inflation risks in the press conference, explicitly stating that he would not reassess the inflation target until inflation returns to 2%. Third, he announced the establishment of five independent working groups covering five major areas: the Fed's communication mechanism, balance sheet management, data sources, productivity and employment, and the inflation framework.

How Bond Yields Are Squeezing Risk Assets

The dot plot's reversal immediately transmitted to the bond market. On the day of the June 17 meeting, the 2-year Treasury yield surged about 16 basis points to 4.21%, while the 10-year rose 6 basis points to 4.49%. As of June 24, the 10-year Treasury yield was oscillating around the 4.48% level.

Rising Treasury yields exert direct valuation pressure on risk assets. When the 10-year note yield stands above 4.5%, the increase in the risk-free rate means that the discount rate for all risk assets is rising. For stocks, a higher discount rate directly reduces the present value of future cash flows; for cryptocurrencies, the opportunity cost of holding non-yielding assets like Bitcoin increases accordingly.

On June 23, all three major U.S. stock indices fell. The Nasdaq dropped 579.56 points, or 2.21%, to 25,587.04; the S&P 500 fell 1.44% to 7,365.48. The sell-off in tech stocks spread further—Nvidia fell 4.15%, the VanEck Semiconductor ETF fell 7.01%, Micron closed down 13.18%, and SanDisk fell 13.64%.

The pressure on the cryptocurrency market was even more pronounced. On June 24, Bitcoin fell 5% to $59,018, breaking below the $60k threshold and hitting a year-to-date low. Bitcoin has fallen more than 30% since the start of the year. Total crypto market cap dropped to $2.15 trillion, the first time since February 2024. The drop triggered $237 million in long position liquidations within four hours, with total crypto market liquidations reaching $486 million during the same period.

Ethereum's decline was even steeper. As of June 24, ETH was trading at $1,662, down 3.7% in 24 hours, with the weekly loss widening to 7.2%. The ETH/BTC ratio fell to 0.027, a nearly two-year low. This ratio has fallen significantly from 0.038 at the start of the year, reflecting the continued weakening of Ethereum's relative position in capital allocation. In the past 24 hours, total liquidations across the network reached $172k, with long liquidations accounting for $60k, or 94%.

Zach Pandl, Head of Research at Grayscale, noted that if the Fed keeps rates unchanged for the rest of 2026, Bitcoin prices could match the stock market's gains. But the current reality is that the market is pricing in rate hikes—CME data shows the probability of a rate hike in September 2026 has surged from very low levels to over 50%.

The $725 Billion AI Bet

In stark contrast to rising interest rates is the aggressive AI investment by tech giants.

According to each company's capital expenditure guidance: Amazon is expected to invest about $200 billion in 2026; Microsoft about $190 billion; Alphabet guided $180 billion to $190 billion; Meta raised its full-year guidance to $125 billion to $145 billion. Total capital expenditures for the four companies are projected at up to $725 billion. Morgan Stanley estimates this figure is about 2.2% of U.S. GDP.

This investment frenzy is changing the financial structure of tech companies. For years, light capital investment was one of the key factors attracting investors to these tech giants—they had extremely high free cash flow and stable stock buyback programs. Now, they have suddenly become capital-intensive companies.

Bloomberg economists point out that current capital expenditures by tech giants far exceed expectations, crowding out buyback budgets. Microsoft and Meta are reinvesting over 100% of their operating cash flow into the AI "black hole," forcing the entire industry to raise funds through record bond issuance. Alphabet is considering its first new stock issuance in 20 years, aiming to raise about $85 billion. Meta is reportedly also considering issuing new shares to raise hundreds of billions of dollars.

Stock buybacks were once a major pillar supporting the rally in large U.S. tech stocks. But in the first quarter of 2026, after collectively spending $27.9 billion on stock buybacks in Q1 2025, Meta and Alphabet did not conduct any buybacks in Q1 2026. Goldman Sachs estimates that the cumulative capital expenditures of these four companies alone from 2025 to 2030 will exceed $5.3 trillion.

Meanwhile, the debate over the return on AI investment continues to heat up. NVIDIA CEO Jensen Huang stated at the shareholder meeting that in fiscal 2026, NVIDIA's revenue grew 65% to $216 billion, with operating cash flow reaching $103 billion. But whether downstream cloud providers can convert computing power investment into sustainable profit growth remains unknown. Morgan Stanley predicts that the capital expenditure-to-sales ratio for hyperscale cloud giants will reach 36% in 2026 and climb to 44% in 2027—fully surpassing the historical peak of 32% for the telecommunications services industry during the internet bubble.

The Intersection of Two Curves

Rising interest rates and the AI arms race are not two parallel narratives. They intertwine on three levels, collectively determining the market's direction.

Rising financing costs are eroding the financial viability of AI investments. A significant portion of tech giants' capital expenditures relies on debt and equity financing. As the 10-year Treasury yield climbs from 4.2% to 4.5%, corporate bond financing costs rise simultaneously. For tech companies that need to raise hundreds of billions of dollars annually, every 100 basis point increase in financing costs means tens of billions in additional financial expenses. Alphabet's planned $85 billion new stock issuance, in an environment of market valuation pressure, will face higher dilution costs and lower pricing.

AI spending is exacerbating inflation stickiness. One of the core drivers behind the Fed's dot plot reversal is inflation—May CPI at 4.2% year-over-year. The AI infrastructure construction frenzy itself is a factor pushing up inflation: data center construction drives demand for commodities like building materials, electricity, and chips; salary competition for engineers and tech talent is also pushing up service sector inflation. In other words, the more intense the AI arms race, the harder it is for the Fed to cut rates—a self-reinforcing cycle.

Capital is being doubly drained from risk assets. On one hand, higher Treasury yields attract capital from risk assets to safe assets; on the other hand, reduced stock buybacks by tech giants mean the "passive buying" that supported the rally in risk assets in recent years is disappearing. These two trends combined create sustained liquidity pressure on cryptocurrencies and tech stocks.

Conclusion: Who Will Crack First?

Back to the original question: rising interest rates vs. the AI arms race—who will crack first?

This is not an either-or question. The two pressure lines are tightening simultaneously, and the market will find a new equilibrium at their intersection.

If inflation gradually cools amid falling energy prices and fading geopolitical risks, the Fed may keep rates unchanged or even pivot to cuts—this would provide breathing room for risk assets and AI investments. Zach Pandl's judgment at Grayscale is based on this scenario.

But if inflation remains sticky and the Fed is forced to hike in the second half of 2026—Bank of America's forecast of 25 bps hikes each in September, October, and December would become reality—then the financing costs for AI giants will rise further, and risk asset valuations will face even greater compression. At that point, the $725 billion capital expenditure plan will have to be reassessed.

For the crypto market, Bitcoin breaking below $60k on June 24, 2026, may just be the beginning. On-chain data shows that if Bitcoin falls below $58k, over $1.6 billion in long leveraged positions will face liquidation. Market participants are closely watching the time window of June 30, 2026. On a more macro level, the pricing logic for crypto assets is shifting from "rate-cut trading" to "rate-hike narrative"—a fundamental paradigm shift.

The race between rising interest rates and AI cash burn ultimately has one referee: inflation data. And the finish line of this race may come sooner than anyone expects.

FAQ

What decision did the Fed make at the June 2026 FOMC meeting?

On June 17, the Fed kept the federal funds rate unchanged at 3.50% to 3.75%, the fourth consecutive hold. However, the dot plot showed that 9 officials expect at least one rate hike in 2026, and the median end-2026 rate was revised up from 3.4% in March to 3.8%.

Why is the 10-year Treasury yield so important to risk assets?

The 10-year Treasury yield is the anchor for global asset pricing. When yields rise, the risk-free rate increases, raising the opportunity cost of holding risk assets like stocks and cryptocurrencies. The 10-year Treasury yield is currently around 4.48%.

How large are the tech giants' AI capital expenditures in 2026?

Amazon: about $200 billion; Microsoft: about $190 billion; Alphabet: about $180 billion to $190 billion; Meta: about $125 billion to $145 billion. Combined, about $725 billion.

Why did Bitcoin fall below $60k on June 24, 2026?

On the macro level, the Fed's dot plot turned hawkish, with rate hike expectations dampening risk appetite. On the market level, Bitcoin fell from a high above $65,500 on June 23, hitting $59,018 on June 24, with year-to-date losses exceeding 30%.

How could the AI arms race affect the Fed's rate decisions?

AI infrastructure investment boosts demand for related goods and services, potentially exacerbating inflation stickiness. This means the more aggressive AI cash burn, the harder it is for the Fed to cut rates, creating a self-reinforcing policy constraint cycle.