Federal Reserve Governor Cook: AI productivity dividend unlikely to curb inflation, Fed may need to tighten policy further

Federal Reserve Governor Lisa Cook said in prepared remarks for an event Monday in Oakland, California, that the future productivity gains from artificial intelligence may not be enough to offset near-term price pressures, and warned the trend could push up inflation across the broader economy. She expects productivity gains to deliver a modest disinflationary effect in 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 intensified 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 fraction of the $2 trillion in committed capital, while AI-driven stock market gains are also spurring 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. "Any estimate of how and when this mechanism will work is subject to uncertainty and warrants further research and discussion," she said. Fed policymakers voted unanimously this month to raise the benchmark rate by 25 basis points, and preliminary median projections suggest at least one more hike before year-end. Fed Chair Kevin Warsh said the move was intended to remove "a dose of accommodation" from the economy to bring inflation back toward the central bank's 2% target. A recent string of public remarks by officials has emphasized that sustained economic momentum and a strong labor market provide grounds for further tightening. Financial markets have also raised their bets on another hike, with federal funds futures indicating about a 70% probability of a rate increase in October. In addition, Cook said the labor market appears able to withstand 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."