Fed's Rate Outlook Darkens Amid AI and Oil Price Pressures

Federal Reserve Governor Lisa Cook painted a bleak picture of the US economy on Monday, warning that inflationary pressures will persist due to artificial intelligence-driven demand and rising oil prices. Speaking at Oakland Tech Week in California, Cook stated that she voted in favor of the Federal Open Market Committee's (FOMC) decision to raise the federal funds rate by 25 basis points.

Cook emphasized that further adjustments to interest rates will be tied to incoming data, indicating that the window for near-term rate cuts is narrowing. The governor expressed concern that AI investment is spilling into the wider economy, driving up costs such as construction labor and energy. She noted that companies have only spent a fraction of their announced $2 trillion in AI investment plans.

Cook also highlighted the rising cost of electricity and water, which are up roughly 5% over the past year. The governor expects AI-driven productivity gains to provide modest disinflation within a few years but cautioned that those effects will not arrive soon enough to offset current pressures.