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Fed Governor Says AI Investment Pushes Up Prices

"... as a policymaker, I understand that innovation can lead to increased risk, if not monitored appropriately. I think about this likelihood both through the lens of AI's interactions with long-standing vulnerabilities and of the risk a hypothetical AI shock would present to the system."
Lisa Cook, FRB Governor
"... as a policymaker, I understand that innovation can lead to increased risk, if not monitored appropriately. I think about this likelihood both through the lens of AI's interactions with long-standing vulnerabilities and of the risk a hypothetical AI shock would present to the system."
Lisa Cook, FRB Governor

Federal Reserve Governor Lisa Cook warned that AI-related demand was a contributing factor to an increasing risk of higher inflation in the economy. She said the right course for monetary policy is to hold interest rates steady from a risk-management perspective.

She said that companies announced more than $1.5 trillion in data-center plans, only a small portion of which has been spent. She noted that prices for chips, other high-tech equipment and software have risen significantly; wages in construction specialty trades have picked up; and electricity and water prices have each increased by about 5 percent over the past year. In coming years, she said, firms may expand both intensively and along the extensive margin into new AI-related capital expenditure such as robotics.

On the labor market, Cook said  the economy could be approaching "the most significant reorganization of work in generations," and that AI-related job loss could precede job gains. She said that increased churn in the labor market should be anticipated and that she would adjust her policy stance on rates downward if the labor market deteriorates.

Governor Cook identified additional risk channels related to AI including more correlated trading and possible market manipulation from AI-driven algorithmic trading and a growing reliance on debt markets to fund AI capital expenditure. On cyber risk, she pointed to Anthropic's "Mythos Preview" model as an example of AI tools that have demonstrated the ability to detect previously undetectable software vulnerabilities, though she said the ultimate implications of AI for cybersecurity remain unclear and acknowledged that AI could make financial institutions more resilient.

Governor Cook stated that the Federal Open Market Committee was not using AI in developing or setting policy. She said many parts of the Fed System were using AI for other tasks, particularly in financial-stability work, and described two staff research efforts as well as a recent agentic-AI sprint involving the Board and all 12 Reserve Banks. The most promising approaches, she said, augment human judgment with AI capabilities while building verification into the architecture itself.

Primary Sources

  1. FRB: Speech: The Opportunities and Risks AI Presents for the Economy and Financial System

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Tags

Individuals
Lisa D. Cook
Regulated Activities
Technology (not Cyber)
Sub-Activity
AI / Machine Learning
Body of Law
Banking Law
Jurisdiction
US - Federal
Organization
US Banking Regulators
Sub-Author
Federal Reserve Board