Fed Governor flags AI-driven inflation as a major 2027 concern

At a regional Federal Reserve event, Governor Lisa Cook told New York Fed President John Williams that the rollout of artificial intelligence may fuel inflationary forces that could persist into 2027. She pointed to a pattern of increasingly frequent supply shocks that have had surprisingly durable effects on the economy. Cook, who supported a recent unanimous rate hike, said she expects AI to raise productivity over the long run but worries about the lag before those gains translate into lower inflation.

She also warned that future supply bottlenecks could arise from geopolitical issues such as the Middle-East conflict, which may alter the usual policy response to shocks. The governor suggested that policymakers might need to adjust their optimal strategy depending on which sectors are most affected.