How AI disinflation could kill jobs and pull down mortgage rates

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeReal EstateMortgagesHow AI disinflation could kill jobs and pull down mortgage ratesRobert McLister: If the tech wizards have it right, the implication is lower-than-normal mortgage rates after AI’s buildoutSome of the most prominent AI leaders believe the tech will result in higher unemployment, leading to weaker wage growth, weaker consumption, and lower inflation — eventually. Photo by AS Stock Nation/Adobe StockOver the next decade, billions of dollars of mortgage interest will rest on one question: Will AI lead to higher or lower mortgage rates?THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountIn the near term, the answer is slightly clearer: the trillions being spent on AI are inflationary, and inflation is the enemy of low rates.But things could change quickly. Tech titan Bill Gates made that point this week in a new essay he wrote about AI:“My message to leaders is: You have a chance to act now, before unemployment rises sharply…”SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againFor mortgagors, higher unemployment matters for multiple reasons, including that it usually leads to lower interest rates.Since inflation targeting began in February 1991, nearly 90 per cent of rising-unemployment periods coincided with lower five-year fixed mortgage rates.In those stretches, the median drop in five-year fixed rates was 84 basis points, according to data from MortgageLogic.news (MLN), a mortgage news and data site edited by yours truly.(Methodology note: This analysis measured the change in leading five-year fixed rates versus unemployment over the same 12-month spans.)Now hold that thought, in light of what these AI pioneers are forecasting:In an interview with The Economist, Elon Musk predicted that “AI will be able to do any job better than any person can do that job.” (One could carve out therapists, elected officials, clergy, judges, social workers, and other human-centric roles, but you get his point.)Unlike past technology cycles, Anthropic chief executive Dario Amodei says it’s possible that AI “permanently drives down the demand for labour.”Gates agrees, arguing “this time really is different” versus the microprocessor, the PC, and the internet, which were net job creators. His reasoning: AI is the first thing that will exceed human cognition across the board, rather than in a single area.With robots doing physical work, there will be fewer places for displaced workers to go, Gates predicts, with Amodei adding that AI will also be “good at the new jobs that would ordinarily be created in response to the old ones being automated.”And it’s not just computer and call-centre jobs at risk. Gates says, “‘Smart’ robots will begin to compete with people on some physical tasks — in the construction and hospitality industries, for example — by the end of the decade.”One thing keeping AI from taking more jobs today is reliability. But that problem will be mostly solved in the “next few years,” Gates told The Atlantic. After that, good jobs thin out, with Gates flagging “entry- and mid-level” roles as the most exposed.“This will be very bad for the job market,” he told Axios, saying he’d stake his reputation on this prediction.Others reject the net-job-loss premise entirely, including Meta chief executive Mark Zuckerberg and Nvidia chief Jensen Huang.But either way, it’s harder to find credible predictions that AI will create a lasting job boom after its buildout phase.Why this mattersThe mortgage relevance hinges on inflation, a crucial driver of interest rates.Some of the most prominent AI leaders believe the technology will result in structurally higher unemployment, leading to weaker wage growth, weaker consumption, and lower inflation — eventually.Mind you, government transfers, including potentially universal basic incomes, could offset some of that income loss.But unemployment isn’t the only way AI trims inflation.AI will also massively increase the output of goods, says Musk, and at better prices.“I’ll make a prediction, which is that deflation will be the issue, not inflation,” Musk said. “If the output of goods and services increases faster than the money supply, you will have deflation.”What’s more, “After one company adopts (Robots and AI) and uses the savings to lower its prices, its competitors will feel immense pressure to do the same,” Gates says.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Whether AI crushes prices through demand destruction (job losses) or a massive supply shock (producing goods cheaper and faster), the net outcome, according to Amodei, is that AI should ultimately “be deflationary rather than inflationary.”The question is, when?If these tech wizards have it right, the implication is lower-than-normal mortgage rates after AI’s buildout phase, all else equal.Until then, huge deficits, massive government and corporate bond issuance, U.S. spillover, tariffs, costlier energy, onshoring and $2.6 to $3.5 trillion of annual AI spending (Gartner’s estimate for 2026 and 2027) should keep a floor under mortgage rates.That floor could last at least a few years while businesses “build the AI machine” and large language models hallucinate far less.After that, AI disinflation becomes a serious rate force.You’ll know it’s happening because of clues like these:Unemployment climbs, particularly in highly AI-exposed occupationsUnit labour costs decelerate, potentially below the two per cent inflation target (watch for surging productivity without surging wages)AI capital expenditure (CAPEX) growth slows, even as productivity gains keep buildingPrice growth in AI-heavy industries slows, or prices drop outrightBond-market breakevens, which are market-based gauges of expected inflation and inflation risk, fallShould this scenario play out, two consequences follow:First, variable rates likely face a stronger downward pull than fixed.Second, fixed rates could stay elevated longer, held up by that floor above, especially deficit spending.What we could see is a wider fixed-variable rate gap, with more opportunity on the variable side a few years out, once AI disinflation really kicks in.Put plainly, variable rates could drop first if AI-driven disinflation pushes the Bank of Canada to cut, while deficits, heavy issuance and fat term premiums keep bond yields and fixed rates stubbornly elevated.For now, rate risk points upward, which is why forward markets price 100 basis points of tightening over the next 24 months.For most payment-sensitive borrowers, the balance of risks favours three- to five-year fixed rates.These terms get borrowers past much of AI’s inflationary growth phase.And in MLN’s rate simulations — which model today’s leading rates and the market’s forward rate expectations — these terms outperform all others.Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.For the best national insured and uninsured mortgage rates, updated daily, please visit our mortgage rate page here.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.