Fed Officials Pin Inflation Hike on Iran War and AI Boom

Two top Federal Reserve officials have spoken out about their support for raising borrowing costs to combat inflation. Susan Collins, president of the Federal Reserve Bank of Boston, said that the renewal of combat in Iran in August was a key reason she supported the rate hike last week. The Fed's benchmark interest rate is now around 3.9%.

Collins also expects that the Fed will keep rates unchanged next year and noted that businesses in her district are concerned about high costs, which could lead to increased inflation. Many companies expect to pass on rising costs to customers, which could push up measured inflation further.

Austan Goolsbee, president of the Chicago Fed, also weighed in, saying that the central bank may have to cause economic pain in the form of higher unemployment to combat stubbornly high inflation. He noted that supply shocks, including higher oil prices from the Iran war and tariffs, are driving up inflation.

Goolsbee suggested that the Fed may need to implement more than just one additional rate hike later this year. He also mentioned that surging investment in data centers for AI is contributing to inflation, which could require further action by the Fed.