Federal Reserve Chairman Kevin Warsh told Congress on Wednesday that the artificial intelligence investment wave will probably raise prices over the next year, but he stopped short of calling those increases inflationary.
The distinction matters. Warsh drew a clearer line than most policymakers between the immediate price effects of the AI boom and whether those effects constitute lasting inflation. His testimony signals how the Fed may respond as corporate spending on AI infrastructure continues to accelerate.
"Will it increase measured prices over the course of the next 12 months? I suspect it will," Warsh said during his semiannual Congressional testimony. "Whether that's inflationary or not, that's up to the Federal Reserve, and we're going to have something to say about that."
The Fed chairman noted that the AI boom is already driving capital spending and pushing up the price of chips. Yet the broader benefits that AI technology might deliver to productivity remain uncertain and likely far off. Warsh argued that a temporary price bump should not be automatically treated as inflation.
"I don't view a one-time change in prices as necessarily being inflationary, because I think there's a supply response in that way," he said.
The AI investment surge has created a fault line among Fed officials. New York Federal Reserve President John Williams has warned that the technology buildout is increasing demand for certain goods and electricity, with costs beginning to ripple through prices. Fed Governor Christopher Waller has similarly flagged strong economic demand tied to AI spending.
Warsh characterized the internal debate as productive. "This is one of the good family fights," he said when asked about the divergence among his colleagues.
During the testimony, which was his first Congressional appearance since taking the helm of the Fed in May, Warsh sidestepped a question about his communications with President Trump. He would not confirm whether he has spoken with Trump since becoming chairman but said the president had not attempted to influence monetary policy decisions.
"I just don't want to be in the business of sharing discussions that the president and I have," Warsh said. "I can offer you this assurance: the President has not, before I took this office, before I raised my right hand, he has not tried to influence the conduct of monetary policy."
Warsh also provided an update on five outside-led task forces that are reviewing how the Fed operates. The groups are examining the central bank's communications strategy, balance-sheet approach, economic data quality, and frameworks for productivity, employment, and inflation.
"I'm not a very patient person," Warsh said. "People have said that to do all this good work you'll need years. I gave them six months." The findings from these task forces are expected in the coming months.
Author James Rodriguez: "Warsh is threading a needle here, and if other Fed leaders don't follow his lead on distinguishing temporary price moves from true inflation, the central bank could end up tightening into a slowdown it didn't need to make."
Comments