Fed Chair Jerome Powell acknowledged Wednesday that the AI-fueled data center boom is contributing to inflation, pushing back on the popular argument that the productivity gains from artificial intelligence should be bringing prices down already.
“In the short term, what’s happening is we’re building data centers everywhere, and that’s actually putting pressure on all kinds of goods and services that go into building these things,” Powell said at a press conference following the Fed’s decision to hold interest rates steady. “So that’s actually probably pushing inflation up.”
The comments came in response to a question about whether the Fed’s own long-run growth estimates—which officials revised up from 1.8% to 2%—reflected optimism about AI-driven productivity, and whether that should translate into lower inflation and lower rates.
Powell wasn’t buying the logic, at least not yet. He said AI likely raises the neutral interest rate in the near term rather than lowering it, because the demand side—the massive physical buildout required to power AI—is running ahead of any productivity payoff.
“In the near term, you’re not looking at something that would immediately call for lower rates, or that would be lowering inflation,” he said. The disinflationary benefits of AI, he suggested, remain theoretical for now.
