Cleveland Federal Reserve President Beth Hammack said that insatiable demand for artificial intelligence (AI) infrastructure could be inflationary.

Hammack, a voting member of the Federal Open Market Committee (FOMC) this year, warned that interest rates may need to rise if broader price pressures do not ease. 

Why the Cleveland Fed Chief Sees Higher Rates on the Table

Hammack framed her rate stance around broad, persistent inflation. She noted that inflation has been “too high” for the past five years. If that continues, she added, the Fed may need higher interest rates to bring it back to target.

“When I look at policy, if that continues, it may mean that we need higher interest rates to bring inflation back down to target,” Hammack told CNBC.

While acknowledging that higher energy prices have contributed to headline inflation, Hammack stressed that core inflation, which excludes the more volatile food and energy categories, has also stayed elevated.

Her comments align with the latest economic data. Core personal consumption expenditures (PCE), the Federal Reserve’s preferred inflation gauge, rose 3.4% year-over-year in May. This marked its highest annual reading since October 2023.

Support for tightening extends beyond Hammack. Minneapolis Fed President Neel Kashkari stated that he expects one hike in 2026, with cuts off the table for now.

AI Spending Meets a Broad-Based Price Problem

Hammack identified AI spending as one potential contributor to price pressure.

“What they say is that the demand is insatiable, that these companies, these hyperscalers, will pay almost any price for those inputs, and they need things built yesterday,” she commented. 

However, she acknowledged the effects could run in both directions. Hammack also mentioned that the broader picture spans energy, electricity, insurance, and supply-chain strains tied to the closure of the Strait of Hormuz. 

Previously, Binance Research made a similar warning, flagging AI-driven chipflation as an underpriced inflation driver,

Source: BeInCrypto