The End of Cheap Capital

As the era of cheap capital comes to an end, executives will need to relearn the discipline of rigorous capital allocation. For nearly two decades, historically low interest rates allowed companies to prioritize growth, tolerate weak returns, and rely on performance metrics that ignored the true cost of capital. But a combination of rising federal debt, massive AI-infrastructure investment, and large-scale energy-system spending is now putting sustained upward pressure on long-term interest rates. The result is a more capital-constrained environment in which strategy, investment decisions, and value creation must once again be tightly linked. This article argues that companies which continue to pursue growth without economic profitability will struggle in this new environment, while those that allocate capital selectively and focus on economically profitable growth will be better positioned to outperform.

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