Hammack: AI Demand Could Force Rate Hikes
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- Beth Hammack warned that 'insatiable' demand for AI infrastructure could fuel inflation, saying the Fed may need higher benchmark interest rates if prices stay elevated
- Hammack cited a district manufacturer making electric switching equipment for data centers, saying hyperscalers 'will pay almost any price' and 'need things built yesterday'
- Hammack said she is 'not seeing a lot of restraint in the economy,' noting businesses cite neither interest rates nor credit spreads as reasons to hold back on investment
- Hammack's view contrasts with Fed Chairman Kevin Warsh, who in his first news conference argued AI productivity gains will lower labor costs and prove disinflationary
- Hammack is a voting FOMC member this year; the panel kept rates steady earlier this month but penciled in a quarter-point increase for 2025, consistent with market expectations
- Hammack delivered the remarks to CNBC's Sara Eisen on the sidelines of the European Central Bank Conference in Sintra, Portugal
Why it matters: Hammack is a current FOMC voter publicly breaking with new Fed Chair Warsh on whether AI is inflationary or disinflationary — the single most consequential framing question for monetary policy right now. With the committee already penciling in a quarter-point 2025 rate increase consistent with market expectations, her hawkish case raises the odds the penciled-in hike materializes rather than being walked back.
