Federal Reserve Chair Kevin Warsh highlighted the potential for a boom in capital expenditures driven by productivity gains and artificial intelligence, indicating a shift in focus from strictly fighting inflation to encouraging economic growth. Speaking at a recent event, Warsh suggested that if the Federal Reserve makes progress in understanding the effects of productivity, data, and inflation frameworks, it will be a significant learning opportunity. He noted that increased demand is already visible, signaling robust economic activity.

AI and Economic Outlook

Warsh commented extensively on the rise of artificial intelligence, stating that he does not have definitive news on whether AI is inflationary. However, he expressed strong confidence that the United States is likely to be a big winner in the AI sector. "It's not a zero sum game," Warsh remarked, emphasizing the broad benefits of the technological revolution. He added, "We are only in the first or second inning of this revolution," suggesting that the full economic impact is yet to be realized.

Policy Implications

Warsh's remarks align with a broader perspective that the Federal Reserve is transitioning from a stance of constraining growth to one that supports it. By acknowledging the role of productivity in offsetting inflationary pressures, the Fed appears open to maintaining a policy environment that fosters investment and innovation. This view contrasts with more hawkish market expectations that prioritize immediate inflation control over long-term growth drivers.

Cleveland Federal Reserve President Beth Hammack warned that surging demand for artificial intelligence infrastructure could add to inflationary pressures and may force the Federal Reserve to raise interest rates again if price growth remains elevated. Speaking to CNBC from the European Central Bank conference in Sintra, Portugal, Hammack said inflation remains above the Fed’s 2% target and warned that persistent price pressures tied to AI spending could complicate monetary policy.

"We’ve got inflation that’s too high, and it’s been too high for the past five years," Hammack told CNBC’s Sara Eisen. "When I look at policy, if that continues, it may mean that we need higher interest rates to bring inflation back down to target."

Hammack pointed to aggressive spending on AI-related infrastructure, particularly data centers, as a sign that economic demand remains strong and could continue putting upward pressure on prices. She cited a manufacturer in her district involved in electric switching equipment for data centers and said demand remains unusually strong. "What they say is that the demand is insatiable, that these companies, these hyperscalers, will pay almost any price for those inputs, and they need things built yesterday," Hammack said.

Recent data from Data Center Watch showed at least 75 AI data center projects worth roughly $130 billion were blocked or delayed in the first quarter of 2026 as infrastructure expansion accelerated. Hammack said she is not seeing much evidence that high borrowing costs are slowing corporate investment. "When I look broadly, particularly around large companies, I’m not seeing a lot of restraint in the economy," she said.

Hammack’s comments contrast with Fed Chair Kevin Warsh, who has argued AI could eventually reduce labor costs and become disinflationary through productivity gains. Hammack is a voting member of the Federal Open Market Committee this year. The Federal Open Market Committee kept rates unchanged earlier this month, though policymakers’ latest projections indicated one quarter-point rate increase could still be possible later this year.

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