Fed governor Lisa Cook says AI boom is creating broader inflation pressures

Fed Governor Lisa Cook says AI investment is adding inflation pressure through data centers, energy and construction, while future rate decisions remain data dependent.

Artificial intelligence is emerging as a new complication for the Federal Reserve’s fight against inflation, with Governor Lisa Cook warning that the price pressures tied to the technology could spread well beyond the companies building AI systems.

The Hill reported Monday that Cook said the initial impact of inflation has been concentrated in AI-related products such as chips, computers, and software. But the much larger buildout of data centers is beginning to affect inputs used throughout the economy, including electricity, water and construction labor.

The warning was more nuanced than a call for immediate monetary tightening. Cook argued that some AI-related price increases reflect demand moving toward a particular sector rather than an economy-wide surge. In that situation, she said, using interest rates to suppress prices could be counterproductive because monetary policy is too broad to target a single industry.

Her concern is what happens when AI investment starts competing for resources shared by other businesses. Cook pointed to electricity and water costs, which she said were each up around 5% over the past year, and said there were signs that inflationary pressure was becoming more widespread.

The broader inflation backdrop remains difficult. The Bureau of Labor Statistics reported that consumer prices rose 3.4% in August from a year earlier, while core CPI increased 2.4%. The Federal Reserve’s preferred PCE measure was running at 3.7% in July, with core PCE at 3.3%. The next PCE report, covering August, is due Wednesday.

Cook also stressed that AI could eventually work in the opposite direction. Faster productivity growth could expand the economy’s capacity to produce goods and services, helping ease price pressures if supply grows faster than demand.

The comments come less than two weeks after the FOMC raised its benchmark rate by 25 basis points to a target range of 3.75% to 4%. Cook supported that decision and said future moves would depend on how inflation, employment and the broader economy respond.

Market expectations are also shifting. CME FedWatch showed traders assigning more than a 70% probability to another quarter-point increase at the October meeting in data published Sept. 23, although those market-implied odds can change as new economic information arrives.