Beth Hammack, president of the Cleveland Federal Reserve Bank, said inflation could worsen as demand for artificial intelligence (AI) infrastructure persists.
In an interview with U.S. business network CNBC on the 30th, Hammack said, "Inflation is too high right now and has remained elevated over the past five years."
She added, "From a policy standpoint, if this continues, interest rate increases may be needed to return inflation to the Federal Reserve's target."
Hammack noted that AI-related expenditure is rising, citing as an example a manufacturer in her district that makes power switchgear for data centers.
She said, "According to the company, demand is endless, and hyperscalers (large-scale data center operators), as the ordering clients, are willing to pay virtually any price for inputs and are so urgent that they want products finished immediately."
She also said, "Overall, especially large companies are not heavily constrained by economic conditions. I have never heard that they are hesitating on investment and growth because of interest rates or credit spreads."
Hammack's view runs counter to Federal Reserve Chair Kevin Warsh's argument. Warsh believes productivity gains from AI will lower labor costs and ultimately have a deflationary effect.
However, Hammack also noted, "AI can have effects in both directions."