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Cue the Fed? Bank for International Settlements: Inflation trends in the AI era are difficult to discern. Be careful of inappropriate policies

2026-07-29·newswire-us-stock-044156
Cue the Fed? Bank for International Settlements: Inflation trends in the AI era are difficult to discern. Be careful of inappropriate policies.

The Bank for International Settlements (BIS) warned on Tuesday that a boom in artificial intelligence (AI) could make it harder for central banks to judge economic conditions and set interest rates, as the technology stimulates both demand and supply.

The Basel-based agency, which advises central banks around the world, said in a briefing on the economic impact of artificial intelligence that policymakers face an unusually difficult task as AI will have a powerful impact on investment, trade and financial markets before any broad productivity gains are fully realized.

The above report was released during the Federal Reserve's two-day interest rate meeting.

The "new leader" Kevin Warsh is a typical representative who believes that "AI will drive a revival of productivity and create space for interest rate cuts without triggering a rebound in inflation." Researchers from the Bank for International Settlements emphasized that artificial intelligence has a profound impact on investment, trade and asset prices,

which is enough to "change the global economic outlook in real time" and support economic growth in an environment of trade frictions and geopolitical shocks. Researchers said the impact was now "significant and clearly visible" and could intensify upward pressure on prices.

Expenditures related to data centers and information technology manufacturing facilities in the United States have risen to 0.8% of gross domestic product (GDP); at the same time, the wealth effect brought about by the rise in the stock market is boosting household consumption.

The report notes that the current surge in artificial intelligence spending, increasingly financed by debt, has boosted economic activity and trade, and stimulated stock market gains - all of which are likely to exacerbate near-term inflationary pressures.

But on the other hand, AI could ultimately increase productivity and capacity, expand supply, and help curb inflation. The key challenge for policymakers therefore is that considerable uncertainty remains about the size, timing and distribution of these gains. "The strength and timing of the various positive and negative forces cannot yet be determined.

The short-term inflationary effect may have already appeared, while the deflationary effect is likely to be gradually released," the researchers wrote.

The Bank for International Settlements further stated that "artificial intelligence blurs cyclical signals by affecting both demand and supply" and warned that this could complicate central banks' assessment of underlying economic conditions and adjustments to monetary policy. One looming risk is misjudging the strong growth from AI investments.

Heavy investment in data centers, chips and digital infrastructure could be interpreted as a sign of an overheating economy, even if some of the growth reflects longer-term increases in production potential. Conversely, rising productivity could mask underlying demand pressures, making inflation trends harder to read.

The Bank for International Settlements also highlighted the uneven impact of AI on countries and labor markets. Countries that are major suppliers of semiconductors, computing infrastructure, or artificial intelligence-related services are likely to experience stronger growth, while others may lag behind.

Such differences could lead to different inflation and growth trajectories, adding to the complexity of monetary policy in different regions. Additionally, the impact of financial markets poses another challenge.

The optimism brought about by artificial intelligence has driven the rapid rise of the stock market and created a wealth effect, which can support consumption and demand, but also increases the risk of asset price bubbles.

However, the Bank for International Settlements did not make policy recommendations, but said central banks need to distinguish temporary investment booms from lasting productivity gains to avoid the risk of "policy missteps".

#Stocks #AI #Semiconductors #Fed

Full text

Cue the Fed? Bank for International Settlements: Inflation trends in the AI era are difficult to discern. Be careful of inappropriate policies

[Hint to the Fed? Bank for International Settlements: Inflation trends in the AI era are difficult to discern. Be careful of inappropriate policies! The Bank for International Settlements (BIS) warned on Tuesday that the boom in artificial intelligence (AI) could make it harder for central banks to judge economic conditions and set interest rates, as the technology stimulates both demand and supply.

The Bank for International Settlements (BIS) warned on Tuesday that a boom in artificial intelligence (AI) could make it harder for central banks to judge economic conditions and set interest rates, as the technology stimulates both demand and supply. The Basel-based agency, which advises central banks around the world, said in a briefing on the economic impact of artificial intelligence that policymakers face an unusually difficult task as AI will have a powerful impact on investment, trade and financial markets before any broad productivity gains are fully realized. The above report was released during the Federal Reserve's two-day interest rate meeting. The "new leader" Kevin Warsh is a typical representative who believes that "AI will drive a revival of productivity and create space for interest rate cuts without triggering a rebound in inflation." Researchers from the Bank for International Settlements emphasized that artificial intelligence has a profound impact on investment, trade and asset prices, which is enough to "change the global economic outlook in real time" and support economic growth in an environment of trade frictions and geopolitical shocks. Researchers said the impact was now "significant and clearly visible" and could intensify upward pressure on prices. Expenditures related to data centers and information technology manufacturing facilities in the United States have risen to 0.8% of gross domestic product (GDP); at the same time, the wealth effect brought about by the rise in the stock market is boosting household consumption. The report notes that the current surge in artificial intelligence spending, increasingly financed by debt, has boosted economic activity and trade, and stimulated stock market gains - all of which are likely to exacerbate near-term inflationary pressures. But on the other hand, AI could ultimately increase productivity and capacity, expand supply, and help curb inflation. The key challenge for policymakers therefore is that considerable uncertainty remains about the size, timing and distribution of these gains. "The strength and timing of the various positive and negative forces cannot yet be determined. The short-term inflationary effect may have already appeared, while the deflationary effect is likely to be gradually released," the researchers wrote. The Bank for International Settlements further stated that "artificial intelligence blurs cyclical signals by affecting both demand and supply" and warned that this could complicate central banks' assessment of underlying economic conditions and adjustments to monetary policy. One looming risk is misjudging the strong growth from AI investments. Heavy investment in data centers, chips and digital infrastructure could be interpreted as a sign of an overheating economy, even if some of the growth reflects longer-term increases in production potential. Conversely, rising productivity could mask underlying demand pressures, making inflation trends harder to read. The Bank for International Settlements also highlighted the uneven impact of AI on countries and labor markets. Countries that are major suppliers of semiconductors, computing infrastructure, or artificial intelligence-related services are likely to experience stronger growth, while others may lag behind. Such differences could lead to different inflation and growth trajectories, adding to the complexity of monetary policy in different regions. Additionally, the impact of financial markets poses another challenge. The optimism brought about by artificial intelligence has driven the rapid rise of the stock market and created a wealth effect, which can support consumption and demand, but also increases the risk of asset price bubbles. However, the Bank for International Settlements did not make policy recommendations, but said central banks need to distinguish temporary investment booms from lasting productivity gains to avoid the risk of "policy missteps".

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