Fed's Hammack: AI Demand Fuels Inflation, Rate Hikes Loom

Cleveland Fed President Beth Hammack is sounding the alarm on AI's inflationary potential. She argues that the relentless demand for AI infrastructure, with hyperscalers willing to pay almost any price for inputs, could be a significant driver of price hikes. Hammack, a voting FOMC member, stated that if inflation remains stubbornly high, the Fed might be forced to consider further rate increases. This isn't just about energy prices; core inflation, excluding volatile food and energy, is also showing persistent elevation, with the Fed's preferred PCE gauge hitting a multi-month high. Other Fed officials, like Neel Kashkari, are also signaling a hawkish stance, with cuts off the table for now. The market needs to watch if this 'chipflation' narrative gains more traction and impacts Fed policy decisions.