Fed Warns of AI-Driven Inflation as Top Risk for 2027

Federal Reserve Governor Lisa Cook has flagged artificial intelligence (AI) as a top risk for 2027, citing its potential to generate inflationary pressures that do not ease quickly. Cook made this statement during an event hosted by the New York Fed, where she also noted her concern about the timing of disinflationary productivity gains and supply bottlenecks.

Cook expressed her views on AI as part of a broader discussion on the economy's future prospects. The Fed has been monitoring inflation closely, with its preferred measure standing at 3.4% in August - above the central bank's 2% target for more than five and a half years. Cook participated in a unanimous Fed vote last month to lift the policy rate by a quarter of a percentage point, aimed at supporting a timely return of inflation to the target.

Cook emphasized that AI will raise productivity over the longer run but is concerned about its short-term impact on supply chains and prices. She also pointed out geopolitical factors, including the conflict in the Middle East, as potential constraints on supply chains, suggesting that the optimal response may differ from traditional approaches.