Fed's Daly tells Axios some companies are preparing for an AI-fueled chip squeeze that could push up prices far beyond the data center boom alone

AI Impact Daly's concern is that AI, tariffs and higher energy costs could last longer than expected or compound each other — keeping inflation elevated and requiring more tightening. AI demand could spread beyond high-end chips before supply catches up, extending the shock beyond the period the Fed would normally expect to look through. "I see it less as a one-off," she says, referring to AI-driven pressure on chip and other technology prices. Daly says the Fed typically thinks in terms of shocks fading within one to three years. "This is probably further out before we get relief." "It doesn't seem like the demand for AI is going down. If anything, it seems like it's going up." "These hyperscalers aren't very interest rate-sensitive," but could become more so as they increasingly rely on borrowing to finance the AI buildout. The biggest AI spending numbers are concentrated among hyperscalers, but plenty of other companies investing in the technology are more sensitive to borrowing costs. That means higher rates can still restrain the broader economy and inflation outlook, even if they do less to slow the firms at the center of the boom. "I do think tightening policy has an effect on the outlook for inflation," Daly says. Policy "I was very pleased, very supportive of the rate hike we took in September," "Whether more will be needed depends on the same set of conditions ... that I mentioned," she says. "If the shocks that we've experienced — tariffs, oil prices from the Middle East conflict, and then AI — if they prove to be conventional shocks where they come, they go, and they have temporary effects, then we may not need more. And I still have some probability on that." "But if they either compound each other or they just simply last longer than we had forecast that they would ... if we have a second round of tariff negotiations that result in more tariffs, then that would be a second shock on top of a first shock. That would extend the period of time over which those shocks would play out." The FOMC, is "not going to lose track of the labor market, and we're going to continue to be careful in our deliberations so that we can really dissect whether those shocks are going to roll off or whether they're going to compound, and whether we think that underlying inflation is gaining momentum or it's not."