AI, Inflation and Interest Rates

Kevin Warsh’s Senate testimony could offer an early clue to the Fed’s policy path, especially on rates and balance sheet strategy.

The near-term backdrop still looks inflationary, as heavy AI-related spending is boosting electricity demand, chip costs, and construction wages before productivity gains fully arrive. That makes it hard to argue that AI alone justifies immediate rate cuts, particularly with inflation still running above target and supply-side pressures from tariffs, energy shocks, and labor shortages lingering.

Over a longer horizon, AI should become a meaningful disinflationary force by lifting productivity and intensifying competition. For investors, the key takeaway is that any policy easing based on hoped-for AI benefits may be premature; the more durable opportunity lies in sectors positioned to gain from faster productivity growth rather than an immediate drop in rates.