Fed's Cook sees AI inflationary push as a top 2027 risk

Oct 1 : Federal Reserve Governor Lisa Cook said on Thursday that she sees AI, and its inflationary push, as a top risk for 2027, and noted that increasingly frequent supply shocks have had surprisingly persistent effects and become more salient for policy. 

"The AI build out is potentially creating inflationary pressures that may not resolve very quickly,"  Cook told New York Fed President John Williams at an event at the regional Fed bank. "So I think this is one of the main things that concerns me right now for 2027."

Cook joined a unanimous vote last month at the Fed to raise the policy rate by a quarter of a point to support a "timelier" return of inflation to the Fed's 2 per cent goal. Inflation by the Fed's targeted measure was 3.4 per cent in August and has been above the goal for more than 5-1/2 years. 

Cook, voicing a view shared by many at the Fed, said she believes that in the longer term AI will boost productivity. But, she said, "I worry about when the productivity gains that would produce disinflation will come, and where the supply bottlenecks are going to be next."

Geopolitical considerations, including the conflict in the Middle East, could also crimp supply chains.  

"Our conventional view used to be that we would look through the supply shocks because tighter monetary policy is not going to have an effect on oil prices, not going to have an effect on a war, but it could slow down employment and output outcomes that we would be more concerned about," Cook said.

Now, however, it is possible that the "optimal response" could be different, depending for instance on the sectors affected by the supply shocks, she said.