Fed Officials Split on Handling AI Investment Boom

The Federal Reserve is divided on how to respond to the AI investment boom. Chairman Kevin Warsh and Governor Christopher Waller emphasize the economic strength and opportunities created by AI, while Governor Lisa Cook highlights the inflationary pressures that could arrive ahead of productivity gains.

In a speech delivered Monday, Cook gave greater attention to the potential for inflation in the short term. She notes that data centers require construction workers and energy used elsewhere in the economy, and rising equity values associated with enthusiasm about AI encourage household spending.

Cook sees a risk that these effects will spread inflationary pressure beyond the technology sector. She anticipates that productivity gains will provide modest disinflation within the next few years, but does not expect those effects to arrive in time to offset broadening inflationary pressure later this year.