Fed officials warn AI costs may outpace productivity
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- St. Louis Fed president Alberto Musalem warned that relying on future AI‑driven productivity growth to solve today's inflation is risky and urged keeping guard up against persistent above‑target inflation.
- Fed governor Lisa Cook noted that AI investment demand is pushing up prices for chips, high‑tech equipment, software, construction labor, electricity and water, citing roughly $1.5 trillion in planned data‑center spending.
- San Francisco Fed president Mary Daly said that productivity gains from AI are hard to link directly to AI investments, with companies reporting they have not yet seen productivity improvements.
- World Economic Forum survey shows economists expect most sectors will not see notable AI‑driven productivity gains for another two years, longer than anticipated earlier in 2026.
- Productivity data from the Bureau of Labor Statistics indicate productivity has averaged about 2.4 % annually over the past three years, above the 1.5 % rate in the 2010s.
- Kevin Warsh has argued AI will be a significant disinflationary force, but policymakers want evidence that productivity gains are durable before basing policy on them.
Why it matters: The warning signals that firms investing $1.5 trillion in AI data centers may face higher input costs, while workers and consumers could see persistent inflation, limiting the Fed’s ability to cut rates. The Fed’s caution could keep monetary policy tighter longer.
