AI investment adds near-term inflation pressure, Cook warns
Federal Reserve Governor Lisa D. Cook warned that massive AI investment is adding near-term inflationary pressure to the US economy. Speaking in Oakland, Cook defended the FOMC's September decision to raise rates by 25 basis points as annual inflation reached 3.8 percent.
Energy, chips and a two trillion pipeline
Cook stated that AI-driven spending has pushed prices higher across chips, software, and data-center inputs like energy and construction labor.
Companies have deployed only a fraction of the $2 trillion in announced AI investment plans, while electricity and water costs have risen roughly 5 percent over the past year and core goods prices are advancing at an annual pace exceeding 3 percent.
These pressures, combined with Middle East supply disruptions and higher oil prices, contributed to total inflation reaching 3.8 percent and core inflation reaching 3.4 percent in August.
Cook voted with the FOMC in September to lift the policy rate by 25 basis points to keep inflation moving toward the 2 percent target.
Productivity lags and labor risks
While productivity gains should provide modest disinflation in coming years, Cook noted these supply effects will not arrive in time to offset near-term price pressures.
The labor market remains resilient, with the unemployment rate declining to 4.1 percent in August.
However, Cook cautioned that AI could trigger a skill mismatch that blunts standard monetary easing tools.
In small business adoption, Fed survey data show nearly half of small firms use AI, with 71 percent reporting productivity gains.
Tech optimism meets macro reality
Cook provides a necessary reality check on AI optimism by linking capital spending directly to immediate inflation.
Her warning on structural labor mismatches highlights the clear limits of central bank rate adjustments.
Monetary policy will struggle to balance infrastructure demands against stubborn price pressures.
Source: Cook, An Update on AI and the Economy
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