AI boom fuels inflation fears, complicating Fed’s next rate move

Ongoing strong demand for AI infrastructure “would likely sustain upward pressure on prices for technology products and electricity,” Federal Reserve policymakers said.

Federal Reserve officials were split last month on whether to increase interest rates or keep them steady, with many seeing accelerating demand for artificial intelligence as a driver of inflation, according to meeting minutes released on Wednesday.

The minutes covered the first monetary policy meeting under Fed Chair Kevin Warsh. Many Federal Open Market Committee members said that “ongoing strong demand for AI infrastructure would likely sustain upward pressure on prices for technology products and electricity,” according to the minutes.

AI-related inflationary pressure, colloquially known as “chipflation,” stems from the rising cost of semiconductors used by data centers. This surge in demand, along with data center competition for energy, has pushed up consumer prices for a wide range of electronic goods, devices and power, and may continue as AI demand increases.