A Federal Reserve policymaker warned that surging demand for artificial-intelligence infrastructure is helping to push inflation higher and could force the central bank to raise interest rates, a view that puts her at odds with the new Fed chair and underscores the divisions emerging over the inflationary impact of the AI boom.
Speaking in a television interview on the sidelines of a central-banking conference in Portugal, Cleveland Fed President Beth Hammack said inflation has been running too high for years and that persistent price pressure may require tighter policy. She told the network that inflation had been too high for the past five years, and that if it continued without restraint from policy, the central bank may need higher interest rates to bring it back down to its 2% target. Hammack is a voting member of the rate-setting Federal Open Market Committee this year, giving her views direct weight in policy decisions.
She pointed specifically to the build-out of AI data centers as a source of price pressure. Citing conversations with businesses in her district, including a manufacturer that produces electrical switching equipment for data centers, Hammack described demand as insatiable, saying the large technology companies racing to expand computing capacity will pay almost any price for the components they need and want them built immediately. That dynamic, she suggested, is contributing to the broader inflation problem, which she stressed is not confined to energy prices.
Her assessment runs counter to the stance of the new Fed chair, Kevin Warsh, who has argued that productivity gains from AI will ultimately lower labor costs and prove disinflationary over time. The contrast highlights a genuine debate within the central bank over whether the technology's near-term effect is to stoke prices through heavy capital spending or to dampen them through efficiency gains. Both, however, have emphasized a firm commitment to bringing inflation down.
The comments were Hammack's first since the FOMC's meeting earlier in the month, the first under Warsh, at which the committee left its benchmark rate unchanged in a range of 3.5% to 3.75% while penciling in a quarter-point increase later this year. The accompanying statement notably omitted forward guidance, reflecting Warsh's view that markets function best when they react to incoming data rather than try to anticipate the central bank's moves. Hammack echoed that approach, declining to specify when the threshold for a hike might be reached and describing every meeting as live.
She also offered a relatively upbeat read on the economy, saying growth looks healthy, the labor market is near full employment and households have weathered the recent surge in gasoline prices tied to the Middle East conflict reasonably well. If consumer spending continues to hold up, she suggested, it would signal that policy may not be restrictive enough to bring inflation down. At the same time, she acknowledged that cooling crude prices have taken some pressure off, and flagged the risk that higher rates could weigh on the job market.
Her remarks add to a shift among some officials toward a more hawkish posture, with another regional Fed president recently moving to expect a hike by year-end after previously anticipating a cut. The backdrop is an inflation rate that, by the Fed's preferred measure, climbed to its highest in around three years through May and has sat above target for more than five years. Treasury prices slipped following the comments as investors recalibrated the odds of tighter policy.