Federal Reserve Governor Lisa Cook warned on October 1 that the rapid AI buildout could become an important source of inflation pressure in 2027, particularly if investment demand and supply bottlenecks prove persistent. Speaking at an event at the New York Fed with New York Fed President John Williams, Cook said “the AI build out is potentially creating inflationary pressures that may not resolve very quickly,” adding that this was “one of the main things that concerns me right now for 2027.” She maintained that AI should ultimately lift productivity, but questioned how quickly those gains would arrive and offset the near-term demand and capacity pressures.
Cook said the timing mismatch matters because the disinflationary benefits of higher productivity may come only after an extended period of investment-driven strain. “I worry about when the productivity gains that would produce disinflation will come, and where the supply bottlenecks are going to be next,” she said. Geopolitical disruptions, including the Middle East conflict, add another layer of uncertainty by threatening supply chains and reinforcing the possibility that inflation shocks remain persistent rather than temporary.
More broadly, Cook suggested the Fed may need to rethink the traditional practice of looking through supply shocks. “Our conventional view used to be that we would look through the supply shocks,” she said, noting that tighter monetary policy cannot directly lower oil prices or end wars and can instead weigh on employment and output. But with supply disruptions proving more frequent and persistent, Cook said the “optimal response” could be different depending on which sectors are affected. The message is not that every supply shock warrants tighter policy, but that repeated and longer-lasting disruptions may carry greater significance for the inflation outlook and the Fed’s response.
Key Takeaways
- Fed Governor Lisa Cook sees the AI buildout as a meaningful inflation risk for 2027, warning that price pressures from the investment wave “may not resolve very quickly.”
- Cook still expects AI to raise productivity over time, but is concerned that the disinflationary benefits may arrive later than the inflationary effects from investment demand and supply bottlenecks.
- She highlighted uncertainty over where the next supply constraints will emerge, adding to the risk that AI-related inflation proves persistent.
- Geopolitical disruptions, including the Middle East conflict, could compound the problem by putting further strain on supply chains.
- Cook also questioned the traditional assumption that central banks should simply “look through” supply shocks.
- She said the “optimal response” could now differ depending on which sectors are hit and how persistent the shock becomes.
- The broader message is that repeated supply disruptions may carry greater policy relevance than in the past, especially if they begin feeding into more persistent inflation.
