Fed's Lisa Cook Says AI Is Fueling Inflation — Warns Labor Market Faces a ‘Painful Transition’

Federal Reserve Governor Lisa Cook on Monday said artificial intelligence investment is adding to U.S. inflation now and warned that expected productivity gains may arrive too late to offset broader price pressures this year.

AI Demand Broadens Inflation Pressure Across Economy

Speaking Monday at Oakland Tech Week, Cook said AI-related demand has pushed up prices for chips, computers and software. She argued the Federal Reserve should not use broad monetary-policy tools to attack those narrow shifts because supply chains and efficiency gains could eventually ease them. "Addressing relative price shifts is not our role," Cook said.

Cook sees a broader risk from the AI infrastructure boom. Data centers compete for construction workers and energy used across the economy, while companies have spent only a small fraction of roughly $2 trillion in announced investment plans. She noted electricity and water costs have each risen about 5% over the past year and core-goods prices are running above a 3% annual pace this year.

Those concerns echo the Fed’s earlier warning that strong AI demand could sustain upward pressure on technology-product and electricity prices. Cleveland Fed President Beth Hammack has also warned that hyperscalers will "pay almost any price" for critical data-center equipment.

Productivity Gains May Arrive Too Late

Cook expects AI to increase productive capacity and provide modest disinflation over the next few years. However, she said those benefits are unlikely to arrive fast enough to offset broader inflation later in 2026.

Higher Rates Remain On The Table

Her warning comes after the Fed raised rates by 25 basis points this month to 3.75%-4%, its first increase since 2023. Cook supported the unanimous decision. She said total inflation reached an estimated 3.8% in the 12 months through August, while core inflation stood at 3.4%.

Cook also expects higher oil prices and Middle East supply-chain disruptions to keep adding inflation pressure in coming months. Reuters reported that Fed policymakers’ September projections pointed toward at least one more rate increase this year.

"The labor market appears to be well positioned to handle an increase in rates," Cook said, citing August unemployment of 4.1%. But she also warned that AI-driven productivity could eventually coincide with a "painful transition" as workers move between jobs and skills.

Photo courtesy: USA TODAY Network via Reuters Connect