Federal Reserve Governor Lisa Cook said the rapid expansion of artificial intelligence and the inflation pressure that may follow is one of the key risks she worries about most for 2027. Speaking in a conversation with New York Fed President John Williams, she said investment and construction of infrastructure to support AI could create inflation pressure that cannot be resolved quickly, and she identified this issue as one of her main concerns for 2027. Her comments came after Cook voted unanimously with the Fed board last month to raise the policy interest rate by 0.25% to help bring inflation back to the Fed's 2% target more quickly. Inflation by the gauge the Fed prioritizes stood at 3.4% in August and has remained above target for more than five and a half years. Cook said that over the long term AI is likely to boost the economy's productivity and may ultimately help ease price pressure, but what remains uncertain is when the productivity gains from AI that would reduce inflation will actually materialize. Meanwhile, geopolitical factors, especially conflict in the Middle East, could further constrain supply chains and add complexity to the Fed's conduct of monetary policy.
Cook flags AI infrastructure investment as a key inflation risk for 2027, reinforcing the case for the Fed's recent 0.25% rate hike and higher-for-longer policy rates.
Hawkish Fed commentary on persistent AI-driven inflation pressure and the recent rate hike support higher Treasury yields, pushing the 10Y yield up (bond prices down).
