Fed Governor Lisa Cook warns AI could fuel inflation, cites it as top 2027 risk

Federal Reserve Governor Lisa Cook warned that the rapid rollout of artificial intelligence could generate inflationary pressures, making it a primary concern for 2027. She voiced this view while speaking to New York Fed President John Williams at a regional Fed event, noting that the surge in AI investment may keep price growth high for an extended period. Cook also highlighted that supply‑side shocks have become more frequent and their effects linger longer than expected, forcing policymakers to pay closer attention. Last month she supported a unanimous decision to lift the policy rate by a quarter‑point, aiming to bring headline inflation back to the Fed’s 2 % target more quickly. The Fed’s preferred inflation gauge was 3.4 % in August, staying above the goal for over five and a half years. While Cook believes AI will eventually raise productivity, she expressed doubt about when those gains will be strong enough to lower prices and warned that new bottlenecks could emerge elsewhere in the economy. She added that geopolitical factors such as the Middle‑East conflict could further tighten supply chains. Traditionally, the Fed assumed that tighter monetary policy would not affect oil prices or war‑driven shocks, but she said the current environment may require a different policy response depending on which sectors feel the strain.

Context

AI’s impact on productivity and price dynamics is still uncertain, and past supply shocks have shown that inflation can stay stubbornly high even when interest rates rise. This makes the Fed’s job of balancing growth and price stability more challenging.