The Zhitong Finance App learned that Federal Reserve Chairman Kevin Walsh said during his testimony before the Senate Banking Committee on Wednesday that price increases brought about by artificial intelligence (AI) infrastructure construction do not necessarily mean continuous inflation. Although AI investment has driven up the prices of products such as computer chips, as supply increases, such one-time price adjustments may not necessarily evolve into widespread and continuous inflationary pressure.
At hearings, Walsh frequently mentioned his dissatisfaction with inflation. He said, “Recent inflation data does not perfectly reflect the potential inflation situation. The labor market looks pretty good, but the inflation aspect is less optimistic. I'm not happy with any of the inflation indicators. We'll be reviewing our tools, including balance sheets and interest rates, to see if adjustments are needed to deal with inflation.”
In response to lawmakers' questions about the impact of the AI boom on inflation, Walsh said that the Federal Reserve will continue to evaluate the impact of AI investment on prices. He pointed out that the current investment in AI infrastructure has indeed driven up chip prices, but this is fundamentally different from the supply shock caused by geopolitical conflicts.
“I don't think a one-off price change necessarily means inflation because supply will eventually respond.” Walsh said, “This is different from overseas conflicts; the latter usually weakens the economy's supply capacity.”
However, he also acknowledged that AI investment in the next 12 months may drive up the prices of some commodities. “I expect it will indeed have an impact on the price level in the statistical sense, but whether this constitutes real inflation will be determined by the Federal Reserve, and we will also give a clear policy response to this.”
At the same time, Walsh said that in the long run, AI will increase the productivity of the US economy and further drive wage growth. He pointed out that at present, wage growth in the US remains at a reasonable level, and wage levels are expected to rise further as productivity continues to improve.
In another question, Walsh declined to say whether he had communicated with US President Trump since taking office as Chairman of the Federal Reserve in May of this year, and emphasized that the independence of the Federal Reserve will continue to be maintained.
“Everyone chose an independent person to take on an independent job, and this is exactly what I plan to keep doing.” Walsh said, “The president never asked me to do anything inappropriate, and even if I did, I wouldn't do it.”
Furthermore, in response to Democratic Senator Elizabeth Warren's request to investigate the Federal Reserve Vice Chairman for Regulatory Affairs Michelle Bauman attending a private bankers' meeting during the quiet period of last month's interest rate meeting, Walsh said that it would be handled by the Federal Reserve's internal oversight agency, and declined to respond to whether she had discussed the matter with Bauman.
Walsh reiterated that the Federal Reserve has “zero tolerance” for high inflation and will continue to work to push inflation back to the target level. He said that although the US consumer inflation data for June was weaker than market expectations and was mainly affected by the temporary easing of the conflict between the US and Iran, the risk of inflation still requires continued attention as the conflict between the two sides escalates again and international oil prices rise again.
According to newly released data, the US core producer price index (PPI) for June was also lower than market expectations, indicating that the overall underlying inflationary pressure remained moderate during the month.
Meanwhile, the minutes of the Federal Reserve's June 16-17 monetary policy meeting showed that policymakers' concerns about future inflation risks have heated up, while concerns about the labor market slowdown have abated slightly. At the first interest rate meeting since Walsh became chairman of the Federal Reserve, the Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate target range unchanged at 3.5% to 3.75%, for the fourth time in a row.