Kevin Warsh reverses stance on AI as disinflationary, citing capex-driven inflation pressures that could prompt Fed tightening later this year.
Federal Reserve Chair Kevin Warsh has shifted his view on artificial intelligence, now warning it may stoke inflation rather than curb it. In a November op-ed, Warsh called AI a “significant disinflationary force,” but recent trends suggest it is contributing to higher prices through substantial capital expenditures.
The reversal comes as bond yields rise, with AI-driven spending potentially outweighing geopolitical factors like the Iran conflict. While Middle East tensions have lifted oil prices, core inflation remains elevated, complicating the Fed’s policy outlook.
Analysts say AI’s inflationary impact could force the Fed to raise interest rates later this year, a stark contrast to earlier expectations of rate cuts.