U.S. Federal Reserve Chair Kevin Warsh told G20 finance leaders on Monday that the global economy is undergoing a powerful investment surge that could lift growth and productivity, marking a sharp departure from the savings glut that characterized much of the past two decades.

Speaking at the G20 opening plenary in Asheville, North Carolina, Warsh said policymakers had moved into an environment in which abundant investment opportunities, particularly in artificial intelligence and infrastructure, are competing for capital that was once concentrated in low-yielding assets such as U.S. government bonds.

“If I were to try to characterize this moment, it would be one of a global investment surge,” Warsh said.

His comments came as investors grapple with a sustained rise in long-term borrowing costs across major economies. In the United States, the 10-year Treasury yield has climbed sharply, while the 30-year yield has moved above 5%, raising concerns about the cost of financing the government’s growing debt burden and the valuation of equities and other risk assets.

Warsh’s argument offers another explanation for the rise in Treasury yields beyond inflation, fiscal deficits, and monetary policy. If global savings are increasingly being directed toward productive investments, governments may have to offer higher returns to attract capital into sovereign debt.

The shift could have broader implications for the U.S. Treasury, which is competing for investors with a rapidly expanding pool of corporate debt used to finance data centers, semiconductor facilities, power infrastructure and other projects associated with the AI boom.

From Savings Glut to Investment Boom

Warsh contrasted the current environment with the “global savings glut” discussed by policymakers at G20 meetings before and after the 2008 financial crisis.

The savings glut, a concept prominently associated with former Fed Chair Ben Bernanke, helped channel large pools of global capital into safe assets, including U.S. Treasuries. Strong demand for government bonds helped suppress borrowing costs and contributed to relatively cheap financing for households and businesses.

Warsh said that dynamic may now be reversing.

The rise of AI and other capital-intensive technologies has created a new class of investment opportunities requiring enormous amounts of funding. Technology companies and hyperscalers are committing hundreds of billions of dollars to data centers, advanced chips, electricity generation and related infrastructure.

That development has created greater competition for the same pool of global capital traditionally available to sovereign borrowers.

However, it comes with significant implications for the Treasury. The U.S. government is already carrying more than $40 trillion of debt, increasing the amount of financing required from bond investors. If private-sector investment continues to absorb capital, Treasury yields may need to remain higher to attract sufficient demand.

Treasury Secretary Scott Bessent said in a Reuters interview on Sunday that stronger economic growth was one reason U.S. yields were elevated, while dismissing concerns about the stability of the Treasury market and the country’s debt burden.

Warsh also challenged assumptions that the U.S. and other advanced economies are locked into weak long-term growth.

He questioned whether traditional forecasts, including the Congressional Budget Office’s projection of roughly 1.8% annual growth, adequately capture potential improvements in productivity.

“The key question we have to ask is what’s the underlying growth potential, and in particular, what’s happening to productivity?” Warsh asked.

That question is central to the economic impact of AI. If businesses can use increasingly capable AI systems to produce more output with the same amount of labor and capital, productivity growth could accelerate, potentially allowing economies to expand faster without generating the same degree of inflationary pressure.

Warsh said the idea of secular stagnation, which holds that economies could face persistently weak growth because of inadequate investment opportunities and innovation, no longer fits the current environment.

The shift, however, creates a complicated policy backdrop for the Fed. Stronger productivity and investment could support economic growth, but a sustained investment boom could also keep demand for capital high and place upward pressure on long-term interest rates.

Inflation Remains The Fed’s Immediate Concern

Warsh’s comments at the G20 came just days after his keynote speech at the Fed’s annual Jackson Hole symposium, where he delivered his clearest indication yet that another increase in interest rates could become necessary if inflation does not move convincingly toward the Fed’s 2% target.

He said policymakers would have “more work to do” if they could not gain sufficient confidence that underlying inflation was moving toward the central bank’s objective.

The juxtaposition of his two speeches highlights the difficult balance facing the Fed. Warsh sees the potential for stronger productivity and investment to raise the economy’s long-term growth capacity, but he also wants to ensure that persistent inflation does not become entrenched.

For financial markets, that combination could mean higher-for-longer interest rates and elevated Treasury yields if stronger growth and investment keep demand for capital high while inflation remains above target.

It also means the traditional relationship between global savings and Treasury demand may be changing. If investors have more attractive opportunities in corporate bonds, AI infrastructure and other productive assets, the U.S. government may have to pay more to finance its deficits.

That could keep long-term borrowing costs elevated even if the Fed eventually lowers its short-term policy rate.