Federal Reserve Chairman Jerome Powell acknowledged on Wednesday that the data center boom fueled by artificial intelligence is fueling inflation, rebutting the popular view that productivity gains from artificial intelligence should already lead to lower prices.
“In the short term, we’re building data centers all over the place, and that’s actually putting pressure on the kinds of goods and services that build those facilities,” Powell said at a news conference after the Fed decided to keep interest rates steady. “So that could actually push inflation higher.”
The comments came in response to a question about whether the Fed’s own long-term growth forecast – which officials raised to 2% from 1.8% – reflects optimism about AI-driven productivity and whether that will translate into lower inflation and lower interest rates.
Powell doesn’t buy that logic, at least not yet. He said AI is likely to raise rather than lower the neutral rate in the short term because the demand side — the massive physical construction needed to power AI — is getting ahead of any productivity returns.
“In the short term, you’re not thinking about lowering interest rates or lowering inflation immediately,” he said. He said the inflation-busting benefits of AI remain theoretical for now.
His comments may provide vindication for Americans feeling the pinch of the data center boom. Goldman Sachs warned last month that consumer electricity prices could rise 6% from 2026 to 2027, in part due to the pressure data centers put on the grid. Utilities are demanding a record $31 billion in rate hikes in 2025, more than double the previous year, with low-income households bearing a disproportionate share of the cost.
Another report this week from Wood Mackenzie found that data center development is actually slowing, not because demand is cooling but because demand is too high for the grid to keep up. Only a third of the projects are in active development, and many may never be built.
Powell noted that the Fed has been eyeing “significant gains in productivity” over the years and said that while he was surprised, he expected that to continue: “I never thought I would see so many years of really high productivity,” he said.
“We haven’t really started to see the impact of generative AI,” he said. “It will certainly contribute. But it’s an empirical question – is demand growing faster than supply?” He added, adding a four-word phrase he repeated a dozen times at the press conference: “We just don’t know.”
This story originally appeared on Fortune.com