Federal Reserve Governor Lisa Cook said on Monday in prepared remarks for an event in Oakland, California, that future productivity gains from artificial intelligence may not be enough to offset near-term price pressures, and warned that this trend could push overall economic inflation higher.
She expects productivity gains to deliver a modest disinflationary effect in the coming years, but said those effects will not arrive in time to offset widening inflation pressures later this year.
Cook said the Fed's decision to raise rates earlier this month was necessary to address high inflation, and that future policy actions will be guided by economic data.
She noted that massive investment in data centers has already increased competition for shared resources such as energy and construction labor, with electricity and water costs up about 5% over the past year.
With companies having spent only a small portion of the $2 trillion in committed capital, while AI-driven stock market gains are also stimulating consumer spending, she warned that broader price pressures could gradually emerge.
Cook said AI "has the potential to be the most significant technological transformation of our lifetimes," but cautioned that how quickly the technology will boost overall productivity remains unclear.
She said: "Any estimate of how and when this mechanism will work is subject to uncertainty and warrants further research and discussion."
Fed policymakers voted unanimously this month to raise the benchmark rate by 25 basis points, and based on median projections initially expected at least one more hike before the end of the year.
Fed Chairman Kevin Warsh said the move was intended to remove "a dose of accommodation" from the economy to help bring inflation back down to the central bank's 2% target.
A recent series of public remarks by officials has emphasized that sustained economic momentum and a strong labor market provide justification for further policy tightening.
Financial markets have also increased their bets on another rate hike, with federal funds futures showing about a 70% probability of an increase in October.
In addition, Cook said the labor market appears capable of handling rate hikes, with the unemployment rate trending lower and other indicators showing the labor market is "roughly balanced and gradually improving."
She said: "The strength of the labor market is also reflected in broader economic growth data, with economic growth maintaining remarkable resilience over the past year."
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