Fed's Goolsbee: AI is becoming an inflation problem

Chicago Fed President Austan Goolsbee said inflation fueled by the AI boom is "crossing the line" and starting to drive up prices in areas of the economy that were previously unrelated. "The areas where prices are rising are no longer limited to data center components and directly related industries. I am increasingly concerned that this is classic aggregate demand overheating," he said. Prices for land, electricity, water, infrastructure construction, and electrical components needed for data centers have risen sharply. Such price increases have not yet passed through to consumer items that ordinary households are sensitive to, such as groceries and haircuts. But economists are closely watching how the wealth effect from AI translates into consumer spending whether it is new millionaires in Silicon Valley whose paper wealth has surged, or infrastructure workers whose incomes have risen. When asked whether the Fed needs to raise rates again at its policy meeting later this month, Goolsbee said: "If inflation remains persistently high, then the answer to what the Fed should do is self-evident."