Paulson says inflation risk balance shifted ahead of Fed's September meeting
She says the artificial intelligence buildout is adding to inflation pressure, a view that cuts against officials who call AI disinflationary.
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Paulson said the buildout of artificial intelligence infrastructure is helping drive inflation pressures, a framing that differs from the view that AI investment tends to hold prices down. Other officials have been focused on inflation risks in recent weeks. Fed governor Bostic has drawn a distinction between near-term and long-term inflation expectations, saying short-run readings are encouraging but longer-run ones are not. Fed vice chair for supervision Barr has said inflation risks now outweigh labor market concerns and that further rate increases are likely needed to reach the 2% inflation goal. Markets priced in two more Fed rate increases after Barr's remarks.
Paulson's shift toward emphasizing inflation risk lines up with a hawkish view among Fed officials that more tightening is likely needed. But her argument that AI investment is stoking inflation, rather than easing it, adds a new strand to that debate. If other policymakers come to share her view, it could weigh against the case for cutting rates in the near term.