It’s not just your electricity bill that could be going up — it sounds like the massive boom in AI data centers is making practically everything more expensive.
As the Washington Post reports, officials at the Federal Reserve are starting to sing a different tune after blaming president Donald Trump’s tariff war on rising prices, admitting that the explosion in “AI-related investments” is contributing to inflationary pressures. That’s on top of Trump’s Iran war already sending the price of oil soaring.
Federal Reserve Bank of Chicago president Austan Goolsbee told Semafor that AI-tied inflation is “jumping out of its lane.”
“Prices are going up in spaces that are not just components in data centers and the directly adjacent industries,” he said. “I’m getting increasingly nervous that that’s just straight, old-fashioned overheating demand.”
In economics, overheating occurs when aggregate demand outpaces productive capacity, leading to demand-side inflation, higher prices, and eventually reduced demand and consumption. In the worst case scenario, overheating can even trigger a recession.
“It takes a long time for overheated demand to get going, and once it’s going, it’s hard to get rid of that,” Goolsbee added.
While the prices for groceries have yet to be directly impacted, economists are wondering whether it’s only a matter of time.
Worse yet, whether raising the interest rate, which makes borrowing more expensive and lowers consumer spending, will be able to meaningfully address rising inflation, is also starting to look less like a certain bet.
The Fed raised interest rates in September, the first time in three years, as inflation proves tough to beat. Futures markets expect yet another increase later this month, according to Reuters.
Meanwhile, the tens of billions of dollars being spent on AI data centers are starting to mask some fundamental problems plaguing the US economy, triggering fears over what it could look like if the AI bubble were to burst.
Sectors that have already seen instant knock-on effects from the construction boom have been consumer electronics becoming practically unaffordable, as well as a major shortage in skilled labor available for housing projects.
According to Goolsbee, “it’s clear what the Fed has to do” if inflation “remains persistent:” continue raising rates. But as tech companies show no signs of slowing down their extreme levels of spending, that lever may end up driving up the cost of investment — a reality that would make things tougher for AI companies as well.
More on AI data centers: The AI Data Center Boom Is Causing a Gigantic Spike in Smog-Spewing Gas Power Plants
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