San Francisco Federal Reserve President Mary Daly has issued a significant economic warning. She stated that a massive wave of artificial intelligence investment could trigger a new round of inflation by 2026.
Daly acknowledged AI's long-term potential to boost productivity. However, she emphasized that the near-term capital expenditure shock could be inflationary. This comes as U.S. inflation remains sticky, staying above the Fed's 2% target.
The Federal Reserve is currently holding interest rates between 3.50% and 3.75% after a cut last year. Daly's comments suggest the central bank may need to maintain a more hawkish stance if AI spending overheats the economy.
Market reaction was subtle. Prediction markets showed a slight dip in the odds for a 2026 rate hike, moving from 55% to 54.5%. Investors are now closely watching for official Fed statements and upcoming inflation data to gauge the true policy impact.