Goolsbee says AI-induced inflation is 'jumping out of its lane,' Semafor reports

Federal Reserve Bank of Chicago President Austan Goolsbee warned on Tuesday that inflation is beginning to resemble "aggregate overheating" caused by surges in artificial intelligence investment spending, rather than solely stemming from supply shocks that will resolve themselves naturally. Goolsbee explained in a Semafor interview that AI data center cost hikes are venturing beyond their usual domains and spurring price increases in unrelated sectors, which could have serious implications.

If such inflationary pressures start spreading to general services and drive GDP growth faster than potential, it could create a more entrenched inflation problem that is difficult to curb. Unlike temporary supply shocks, overheating demand tends to persist and proves challenging to suppress. Goolsbee emphasized that conventional economic wisdom dictates that if overheating inflation is detected, decisive and swift action must be taken to prevent it from infiltrating inflation expectations and the public's perception that it is a fleeting issue.

When asked about whether the Federal Reserve should continue raising interest rates, Goolsbee stated that if inflation remains persistent, it becomes apparent that the Fed needs to act. Although the central bank reduced rates three times in 2025, it increased them for the first time in three years last month, raising the short-term policy rate by a quarter percentage point to a range of 3.75 per cent-4.00 per cent.

Market projections suggest the Fed will likely refrain from further hikes at the upcoming October 27-28 meeting but could raise rates by another quarter point in December.