Federal Reserve Chair Kevin Warsh warned on Friday that a surge in artificial intelligence spending could exert upward pressure on U.S. inflation, describing the economic impact as a potential shock to the system. Speaking at an International Monetary Fund conference in Bangkok, Warsh acknowledged that while AI-driven investment may ultimately boost productivity and wealth, the transition could be ‘very bumpy.’
Warsh emphasized that the demand-side effects of AI spending—such as increased chip manufacturing and data center construction—are currently outpacing supply-side adjustments, which could contribute to higher consumer prices. He noted that the Federal Reserve’s dual mandate of stable prices and full employment would require careful monitoring of these developments. Warsh, who assumed leadership of the Fed in May, reiterated his long-term optimism about AI’s economic potential but cautioned that the near-term path remains uncertain, including its effects on labor markets and market structures.
The remarks came as the U.S. reported a 4-month high in inflation for September, with prices rising 3.7% year-over-year, driven in part by rising gasoline costs linked to geopolitical tensions in the Middle East. Warsh also referenced other economic shocks, including military conflicts, which have further complicated the inflation outlook.
During a separate fireside chat with IMF Managing Director Kristalina Georgieva, Warsh framed AI’s economic impact as ‘hugely consequential’ over the next decade, though he declined to speculate on the Fed’s next policy move. The Fed raised interest rates to a range of 3.75% to 4% in September, its first hike since 2023, and Warsh stated that the global economy has broadly aligned with the central bank’s expectations since then. Market expectations, as tracked by the CME Fed Watch tool, suggest a 72.3% chance of the Fed maintaining current rates at its October 27-28 meeting, with a majority anticipating a 25-basis-point hike in December instead.