Fed's Warsh says AI-driven price pressures may not prove inflationary

Fed Chair Kevin Warsh said AI-driven price increases may not be inflationary, arguing higher investment could boost productivity and wages over time

Federal Reserve Chairman Kevin Warsh said higher prices driven by the build-out of artificial intelligence (AI) infrastructure are not necessarily inflationary. 

In an exchange with lawmakers on the impact of the AI boom, Warsh said policymakers will debate how inflationary that proves to be, and he acknowledged the investments were already raising the prices of computer chips. 

“I don’t view a one-time change in prices as necessarily being inflationary because there’s a supply response,” Warsh said Wednesday in response to a question during his testimony before the Senate Banking Committee. “In that way, this is different from a foreign conflict and what it might do, which tends to reduce the supply side of the economy.” 

“Will it increase measured prices over the course of the next 12 months?” he asked. “I suspect it will be. Whether that’s inflationary or not, that’s up to the Federal Reserve, and we’re going to have something to say about that.” 

In his second day of testimony on Capitol Hill this week, Warsh told lawmakers that he expects AI will lift productivity and wages over time. “Wages have moved up at a reasonable pace, but it’s likely that as productivity moves up more, we should see wages move more,” he said. 

New data on Wednesday showed an underlying gauge of producer price inflation was also softer than expected in June, suggesting broad based inflation remained in check during the month.