Federal Reserve Chairman Kevin Warsh testified before the Senate Banking Committee on Wednesday, pointing out that price increases triggered by artificial intelligence infrastructure construction do not necessarily represent the emergence of long-term inflationary pressures. He stated that although AI investment has driven up prices of related products such as computer chips, with gradual adjustments on the supply side, such one-time price changes are unlikely to evolve into broad and sustained inflation. Warsh emphasized that recent inflation data have failed to accurately reflect underlying price trends, and that while the current labor market performance remains solid, progress on inflation is unsatisfactory. The Federal Reserve will review policy tools including the balance sheet and interest rates as circumstances warrant, in order to make necessary responses.
In response to lawmakers’ questions regarding the impact of the AI boom on prices, Warsh stated that the Federal Reserve will continue to monitor the transmission effects of AI investment on inflation. He explained that the current rise in chip prices is fundamentally different from supply shocks triggered by geopolitical conflicts, as the latter tend to weaken the overall supply capacity of the economy, whereas demand driven by AI investment is expected to stimulate positive responses from the supply side. Warsh projected that over the next 12 months, AI investment may still push up prices of certain goods and affect price levels as measured by statistical metrics. However, whether this constitutes genuine inflation will be judged by the Federal Reserve based on its policy framework, with a clear response to follow. In the long run, AI is expected to enhance U.S. economic productivity and further support reasonable wage growth.
Federal Reserve Governor Lisa Cook said on the same day that the primary risk facing the U.S. economy has shifted from the labor market to inflation, with persistently elevated price pressures becoming a key policy concern. She emphasized that if there is no clear sign of inflation cooling in the future, she is prepared to take action to bring prices back toward the 2 percent target. Although the consumer price index recorded its first month-over-month decline in six years in June, Cook noted that by the Fed’s preferred inflation gauge, current prices remain nearly two percentage points above target. She believes that AI infrastructure investment, tariff policies, and supply chain disruptions stemming from the Middle East situation could all serve as important drivers keeping inflation elevated for an extended period, and the broad-based rise in goods prices in recent months suggests that the rebound in inflation is not merely a result of energy cost fluctuations.
In his testimony, Warsh reiterated that the Federal Reserve has zero tolerance for high inflation and will continue to commit itself to bringing inflation down. He noted that although the core producer price index for June came in below expectations, indicating moderate underlying inflationary pressures for that month, international oil prices have risen due to renewed escalation of the Middle East conflict, so inflation risks still warrant caution. The Fed’s June meeting minutes showed that policymakers’ concerns over inflation risks had intensified, while worries about a slowing labor market had eased. At the first policy-setting meeting following Warsh’s assumption of office, the Federal Open Market Committee (FOMC) unanimously decided to keep the federal funds rate target range unchanged at 3.5 percent to 3.75 percent, marking the fourth consecutive hold. Cook believes that current monetary policy remains somewhat restrictive, and that policymakers have ample time to observe subsequent data before making adjustments. Medium- and long-term inflation expectations remain broadly stable, but public confidence should not become a reason to let down one’s guard.
