Cleveland Fed says AI demand could fuel inflation

A top Federal Reserve official has warned that surging demand for artificial intelligence infrastructure is fueling inflation and could force the central bank to raise interest rates. Cleveland Fed President Beth Hammack, a voting member of the Federal Open Market Committee this year, said the "insatiable" demand from companies building data centers is creating upward price pressure that, if sustained, may require a policy response.

Hammack delivered the assessment in recent days, citing conversations with manufacturers in her district who supply components for AI data centers. She stated that these manufacturers report that large technology firms "will pay any price" and "need things built yesterday," indicating a price-insensitive demand that allows suppliers to raise costs. This dynamic, she argued, feeds directly into broader inflation metrics.

Her remarks underscore a significant concern within the Fed that inflation, which has remained above the central bank's 2% target for five years, is proving persistent. Hammack stated that if this scenario continues and other pressures on prices do not abate, policymakers may need to raise interest rates to bring inflation back down....