Fed Governor Waller Says AI Is Also Fueling Inflation, Warns Against Hasty Rate Hikes

[Financial News New York=Lee Byung-chul] Christopher Waller, a governor of the U.S. Federal Reserve System, said artificial intelligence is emerging as a new inflationary pressure, but drew a line against a hasty increase in the benchmark interest rate. He warned against repeating the mistake of responding too slowly to inflation in 2021, while also cautioning against tightening too quickly based only on past experience.
In a speech in New York on the 13th local time, Waller said, "We should not be fighting the last war," adding, "We need to see more data before raising the benchmark rate."
He said recent inflation cannot be explained simply by tariffs or higher energy prices. In addition to the tariffs imposed in 2025 and energy price increases driven by conflict in the Middle East, he said rising demand from the spread of AI is becoming a new factor keeping prices above the Federal Reserve's 2% target.
Waller said, "The desire to avoid past mistakes often creates new ones." He added, "I know well that we were too slow to respond to high inflation in 2021, but that does not mean we should automatically raise rates now to deal with rising prices."
He said inflation could still slow again, but he did not rule out the possibility that it could remain elevated or rise again, making additional tightening necessary in the near term.
He stressed that policymakers must closely examine the root causes of inflation. He pointed to tariffs imposed in 2025, higher energy prices tied to the Middle East conflict, and broader demand growth from increased AI investment as factors pushing up prices.
Waller said, "We should not make the mistake of tightening too quickly, as if we were fighting the last war, simply because our response was late last time." He added, "At the same time, we must not repeat the mistake of responding too late, as we did in 2021 and 2022."
He also said there are some positive conditions this time that were not present then. The labor market remains solid, but wage-driven inflationary pressure is limited, and market-based inflation expectations have stayed relatively stable.
He said, "Stable inflation expectations do not mean the central bank can ignore prices running above target." He added, "Waiting and hoping inflation disappears on its own is not an option."
The remarks came a day before the U.S. Department of Labor was set to release June Consumer Price Index (CPI) data. Markets expect headline CPI to ease on the back of lower global oil prices, but Waller said, "If core inflation comes down, that would be welcome, but we need several more months of slowing to be confident inflation is moving in the right direction." He added, "If that outcome is confirmed, it would be appropriate to keep the current benchmark rate unchanged."



pride@fnnews.com Lee Byung-chul Reporter