Fed's Cook Says AI Data Center Spending Has Lifted Power, Water Costs by About 5%

Federal Reserve Governor Lisa Cook said Monday that massive data center investment has pushed up electricity and water costs by about 5%, offering the Fed's most specific warning yet on the inflationary effects of artificial intelligence.

Speaking in Oakland, California, Cook noted that companies have spent only a small portion of the $2 trillion in pledged AI-related capital expenditure, and the rollout of the remaining funds is likely to intensify price pressures. She also pointed to a second channel: AI-driven stock market wealth effects are boosting household spending, potentially offsetting the mild disinflation from productivity gains.

"At this point, I expect productivity gains to deliver a gentle slowdown in inflation over the next few years. However, I do not believe these positive effects will arrive in time to offset the broadening inflationary pressures later this year," Cook said.

Cook said the Fed's rate hike earlier this month was necessary to address elevated inflation, and that future policy will be guided by economic data. She added that the labor market can withstand further rate increases and that economic growth has remained "notably resilient" over the past year.

Futures markets currently price in about a 70% chance of another rate hike in October.