St. Louis Fed President Alberto Musalem has been making the rounds with a pointed message for markets and fellow policymakers alike. AI investments have been great for boosting demand, think data centers and soaring tech equity valuations, but the supply-side productivity miracle that’s supposed to bring prices down? Still waiting on that one.
The demand side showed up, the supply side didn’t
Musalem’s argument is straightforward. AI has generated enormous economic activity on the demand side. Companies are pouring capital into infrastructure, chips, and compute power. What it hasn’t done, at least not yet, is deliver the kind of broad-based productivity improvements that would push costs down across the economy.
During an April 1, 2026 event at the American Enterprise Institute, Musalem drew a clear line between these two dynamics. The investment boom is real. The disinflationary payoff is theoretical.
Core PCE inflation, the Fed’s preferred gauge, sat at 3.1% in January 2026. That’s well above the 2% target, and forecasts showed minimal improvement heading into February. Musalem has been blunt about what that means for the Fed’s posture.
