Federal Reserve Governor Christopher Waller on Monday expressed concern about inflation but cautioned against premature action, warning that the central bank should wait for more data before raising interest rates. In remarks delivered in New York, Waller cited artificial intelligence (AI) as a key factor contributing to stubbornly high inflation, alongside tariffs and energy price spikes tied to Middle East conflicts.
Waller acknowledged the risk of repeating past mistakes, such as the Fed's delayed response to inflation in 2021, but emphasized the need to avoid overreacting. He noted that while there is a credible case for inflation to fall, there is also a plausible scenario where it remains elevated, potentially requiring tighter monetary policy.
The policymaker highlighted two factors working in the Fed's favor: a stronger labor market and the absence of significant inflationary pressures from wages. However, he warned that the massive investment in AI infrastructure—estimated at $700 billion this year—has driven up costs for memory chips, processors, and electricity, contributing to inflationary pressures.
Fed officials will closely monitor June's inflation report, to be released Tuesday, for further signs of AI's impact on prices. While gasoline prices have fallen due to a cease-fire between the U.S. and Iran, the resumption of fighting has introduced new uncertainty. Waller's remarks underscore the Fed's delicate balancing act as it navigates inflation risks amid evolving economic conditions.