Fed's Lisa Cook sees AI inflationary push as a top 2027 risk

Federal Reserve Governor Lisa Cook warned on Thursday that artificial intelligence (AI) and its potential inflationary impact represent a significant risk for 2027. She noted that supply shocks have increasingly become salient for policy, creating inflationary pressures that may persist for an extended period. Cook spoke at an event at the New York Federal Reserve Bank alongside NY Fed President John Williams.

Last month, the Fed unanimously voted to raise interest rates by a quarter of a point to accelerate the return of inflation to the 2% target. Inflation measured by the Fed's preferred index was at 3.4% in August and has stayed above the goal for over 5.5 years. Cook acknowledged that AI will likely boost productivity in the long run, but expressed concern about when these productivity gains will materialize and where future supply bottlenecks may arise.

Geopolitical factors, such as the Middle East conflict, could further strain supply chains. Cook argued that the conventional view that monetary policy can effectively address supply shocks is no longer valid, as tighter monetary policy may not impact oil prices or geopolitical conflicts. She suggested that the optimal response to supply shocks could vary depending on the sectors most affected.