Bowman prioritizes inflation as AI financing risks mount
Federal Reserve Vice Chair for Supervision Michelle W. Bowman sees inflation as the priority as labor conditions improve. She estimates core PCE inflation reached 3.3 percent in October 2026 and warns about energy costs and AI financing risks.
Holding rates as inflation broadens
Bowman supported holding the federal funds target range at 3.75–4.0 percent in October, seeking clarity on economic trends, the recent rate increase and tighter financial conditions.
She estimates third-quarter GDP growth exceeded 3 percent after 2.4 percent in the first half, potentially overstated by 0.3 percentage point.
October unemployment fell to 4.1 percent; job gains averaged about 80,000 monthly through October.
Annual wage growth was 3.1 percent in September's employment cost index and October's hourly earnings.
Tariffs, energy and AI each explained roughly one-fourth of above-target core PCE inflation through September; earlier shocks explained the rest.
She forecasts core inflation moving closer to 2 percent in 2027 as these pressures fade.
Oil disruptions meet AI leverage
Before the conflict, the Strait of Hormuz carried about 20 percent of global oil supply.
Brent exceeded $110 per barrel in late October; freight and insurance costs remained elevated despite recovering flows.
Bowman said AI-related debt was on track to exceed $800 billion in 2026, with other potential obligations exceeding three times that amount.
Complex financing obscures counterparty risk across banks, insurers and funds.
About 25 percent of businesses and 10 percent of workers report daily AI use, while investment demand raises equipment prices.
Inflation is not the only constraint
Bowman weighs further tightening against costs to housing and other rate-sensitive sectors.
She says monetary policy can contain second-round inflation but cannot offset direct tariff and energy effects.
Before December's meeting, she will assess October PCE and November employment data.