The latest Fed minutes revealed an interesting detail. In addition to the usual discussions about interest rates, officials unexpectedly devoted a lot of attention to artificial intelligence. In their view, this sector is now becoming one of the factors preventing inflation from falling as quickly as the market would like.
There is still no consensus within the regulator. Some representatives are confident that it is too early to change monetary policy. Others believe that room for rate cuts may eventually emerge. However, no one is expecting quick decisions yet.
The discussions about artificial intelligence at the Fed did not come out of nowhere. Over the past year, major IT companies have significantly accelerated the construction of data centers and started to expand their computing power more actively. All this requires not only new servers but also serious investments in energy supply.
Because of this demand, not only chips are becoming more expensive. Manufacturers have to increase equipment production, energy companies have to look for additional capacity, and costs are gradually rising throughout the chain. Some economists call this effect ‘chipflation.’
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Within the Fed there is still no reason to talk about a quick victory over inflation. According to meeting participants, even a favorable external environment by itself does not guarantee that price growth will quickly return to the target level.
Investments in artificial intelligence add further uncertainty. As long as companies continue to actively expand infrastructure and increase spending, price pressures may persist.
This is an important signal for the market. The later the Fed moves to cut rates, the less reason there is to expect a quick return of interest in riskier assets, including cryptocurrencies.
The effect of the ongoing AI boom was also discussed separately. Such investments do support the economy, but at the same time increase demand for energy, computing power, and expensive equipment. As long as this cycle continues, inflationary pressure will also remain.
For this reason, many meeting participants believe that the impact of AI will remain one of the factors complicating the fight against rising prices for a long time to come.
The new Fed forecasts confirm this caution. According to the updated dot plot, nine committee members still expect at least one rate hike by the end of 2026. Another six allow for two hikes of 25 basis points each. At the same time, the PCE inflation forecast was revised from 2.7% to 3.6%.
A hawkish Fed forecast indicates that high rates are likely to remain for a long time. Source: Federal Reserve System.
At the same time, the June meeting itself ended without changes. The rate range was kept at 3.5–3.75%, and the CME futures market also does not expect any decisions at the July 29 meeting. The probability of keeping the current level is estimated at about 70%.
Why AI Is Increasingly Mentioned Alongside Inflation
According to Nick Raak, Director of Research at LVRG Research, many still underestimate the scale of the changes taking place.
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The rise in spending is not only related to chip production. To support the operation of modern artificial intelligence models, new data centers have to be built, server equipment purchased, power grids upgraded, and electricity generation volumes increased. All this requires large investments and gradually affects the cost of a wide variety of goods and services.
At the same time, Raak does not consider this situation permanent. As technology develops, companies will be able to operate more efficiently, and some of today’s expenses will eventually be offset by productivity growth. For now, the market is at a stage where investment continues to outpace returns.
In Raak’s opinion, decentralized technologies may change the situation over time. If computing power starts to be used more efficiently, the need to endlessly expand infrastructure will no longer be as acute.
For now, market participants are watching something else entirely. The main question now is how long the Fed can maintain the current rate level. If tight policy starts to noticeably slow down the US stock market, investors will almost certainly start talking about easing again. For cryptocurrencies, such changes in expectations often turn out to be more important than the inflation statistics themselves.
