St. Louis Fed President Alberto Musalem is warning markets not to count on artificial intelligence to bring down inflation anytime soon.
While AI has driven massive demand-side activity-think data centers and soaring tech valuations-Musalem argues the supply-side productivity miracle that could actually lower prices has yet to materialize.
Speaking at the American Enterprise Institute on April 1, 2026, he drew a sharp line between the real investment boom and the theoretical disinflationary payoff.
Core PCE inflation, the Fed's preferred gauge, stood at 3.1% in January 2026, well above the 2% target. "It's too early to outsource our job of bringing inflation back towards 2%," Musalem said in a January webcast.
Productivity growth has been decent but not extraordinary-roughly average by post-WWII standards. Fed minutes from earlier this year reflect ongoing uncertainty about AI's economic impacts.
For investors, the message is clear: rate cut expectations need a reality check. If AI won't ease inflation pressures, rates stay higher for longer. The AI boom itself may even be fueling demand-side inflation, making the Fed's job harder.