Federal Reserve Cites AI and Tariffs as Inflation Drivers

The Federal Reserve System identified artificial intelligence, tariffs, and the conflict between the United States and Iran as primary drivers of rising inflation in its June meeting minutes and semi-annual Monetary Policy Report to Congress. Headline PCE inflation rose from 2.4% in February to 4.1% in May, leading Fed staff to raise inflation forecasts for 2026-2027 and lower GDP projections.

Officials noted that strong demand for semiconductors and data-center infrastructure is sustaining upward pressure on technology and electricity prices. While the economy continues to expand, the central bank warned that growth is heavily dependent on AI-related capital spending, while housing and consumer spending remain soft. The Federal Open Market Committee kept interest rates steady at a range of 3.5% to 3.75% during its June session, though the possibility of future hikes to combat AI-driven inflation could impact stock market valuations.

Chairman Kevin Warsh removed forward-looking guidance from FOMC statements and is scheduled to testify before the House Financial Services Committee and the Senate Banking Committee next Tuesday and Wednesday. Despite the deteriorating inflation environment, the central bank committed that it will deliver price stability.