Apollo Chief Economist Warns Wash's Rate Cut Hopes Dampened: AI Infrastructure Boom Will Initially Fuel Inflation

Torsten Slok, Chief Economist at Apollo Global Management, Inc., has warned that the initial phase of the AI infrastructure boom will fuel inflation, making it difficult for new Federal Reserve Chairman Kevin Warsh to cut interest rates as quickly as anticipated. “We may need to wait a little longer, as the initial AI boom will inevitably push up inflation,” he stated. He pointed to clear inflationary pressure signals emerging from semiconductor, energy, and labor prices.

This assessment hits at the core contradiction behind the AI boom: while proponents loudly tout its potential for economic growth, the technology's impact is already permeating various aspects of the labor market and monetary policy. Market fears of AI-induced unemployment are overblown, but the scale of capital being poured into AI infrastructure is unprecedented. U.S. tech giants are planning to spend up to $725 billion in capital expenditures this year, primarily for purchasing AI data center equipment.

Warsh had previously argued that productivity gains from AI would pave the way for accommodative monetary policy. His predecessor, Powell, faced fierce criticism from Trump for failing to meet the President's expectations regarding the pace and magnitude of rate cuts. (Jinshi)