AI Boom Sparks Inflation Concerns for Federal Reserve

Federal Reserve Governor Lisa Cook warned that the ongoing AI infrastructure boom is contributing to inflationary pressures in the US economy. Speaking at Oakland Tech Week, Cook noted that strong demand for AI-related goods has driven up prices for computer chips, software, and other technology products.

Cook argued that while the Fed should be cautious about using broad monetary policy tools to address these price shifts, she sees a broader risk from the AI boom. Data centers are competing with construction workers and energy across the economy, and companies have only spent a small fraction of their announced $2 trillion investment plans.

Cook also expects productivity gains from AI to arrive too late to offset broader inflationary pressures later in 2026. She supported the Fed's recent decision to raise interest rates by 25 basis points to 3.75%-4%, citing total inflation at an estimated 3.8% and core inflation at 3.4%.

The labor market appears to be well-positioned to handle further rate increases, Cook said, but she warned that AI-driven productivity could coincide with a 'painful transition' as workers move between jobs and skills.