The development of artificial intelligence infrastructure will create inflationary pressure
that could prevent Federal Reserve Chairman Kevin Warsh from cutting interest rates as quickly as he has outlined according to Torsten Slok, chief economist at Apollo Global Management Inc.
"We'll probably have to wait a while, because the AI boom will definitely be inflationary at first," Slok said Monday on Bloomberg Television's "Surveillance."
Slock pointed to rising prices for semiconductors, energy, and labor costs as evidence of the inflationary impact. "We should expect the construction of AI data centers to be inflationary rather than disinflationary," he noted.
Warsh previously argued that AI-driven productivity gains should pave the way for looser monetary policy. His predecessor, Jerome Powell, was criticized by President Donald Trump for not cutting rates quickly and deeply enough.
Inflation continues to exceed the Federal Reserve's 2% target, with the personal consumption expenditure index reaching 3.8% in April—the highest level since 2023. Warsh will hold his first Federal Open Market Committee (FOMC) meeting on June 16–17.
Traders currently estimate the likelihood of an FOMC rate hike this year at about 80%, as infrastructure construction to support AI growth is pushing up the cost of chips and electricity. According to Slock, the lagged effects of tariffs and rising energy prices are also contributing.
Before the US and Israel launched their attack on the Islamic Republic on February 28, markets were expecting more than two Fed rate cuts by the end of the year.
The largest US tech companies plan to spend up to $725 billion on capital expenditures this year, primarily on AI data center equipment.