Fed's Beth Hammack Warns AI Spending Could Keep Inflation Hot and Force Interest Rates Higher: 'Not Seeing A Lot Of Restraint...'

Cleveland Federal Reserve President Beth Hammack said Tuesday that surging demand for artificial intelligence infrastructure could add to inflationary pressures and may force the Federal Reserve to raise interest rates again if price growth remains elevated.

Speaking to CNBC from the European Central Bank conference in Sintra, Portugal, Hammack said inflation remains above the Fed’s 2% target and warned that persistent price pressures tied to AI spending could complicate monetary policy. "We’ve got inflation that’s too high, and it’s been too high for the past five years," Hammack told CNBC’s Sara Eisen. "When I look at policy, if that continues, it may mean that we need higher interest rates to bring inflation back down to target”.

The Federal Reserve uses interest rates to manage inflation.

Higher rates generally slow borrowing and spending, helping cool price growth across the economy.

AI Demand Tests Fed’s Inflation Fight Hammack pointed to aggressive spending on AI-related infrastructure, particularly data centers, as a sign that economic demand remains strong and could continue putting upward pressure on prices.

She cited a manufacturer in her district involved in electric switching equipment for data centers and said demand remains unusually strong. "What they say is that the demand is insatiable, that these companies, these hyperscalers, will pay almost any price for those inputs, and they need things built yesterday," Hammack said.

That demand has been visible across the broader AI ecosystem.

Recent data from Data Center Watch showed at least 75 AI data center projects worth roughly $130 billion were blocked or delayed in the first quarter of 2026 as infrastructure expansion accelerated and local resistance increased.

Sen.

Elizabeth Warren (D-Mass) has also raised concerns about AI-related electricity demand, warning that rapid data center expansion is putting increasing pressure on the U.S. power grid.

She recently sought answers from BlackRock, Blackstone and KKR over investments tied to data center infrastructure.

Read Also: Trump Wants Lower Gas Prices, but Refineries Face Heat Waves, Iran War and a Russia-Ukraine 'Wild Card,' Analyst Says Big Tech Spending Shows No Restraint Hammack said she is not seeing much evidence that high borrowing costs are slowing corporate investment. "When I look broadly, particularly around large companies, I’m not seeing a lot of restraint in the economy," she said.

Corporate earnings have reinforced that view.

In May, Marvell Technology Inc. (NASDAQ: MRVL ) CEO Matt Murphy said the company’s data center business was "on fire," citing record AI-related demand and bookings.

Hammack’s comments contrast with Fed Chair Kevin Warsh, who has argued AI could eventually reduce labor costs and become disinflationary through productivity gains.

Hammack is a voting member of the Federal Open Market Committee this year.

The Federal Open Market Committee kept rates unchanged earlier this month, though policymakers’ latest projections indicated one quarter-point rate increase could still be possible later this year.

Disclaimer: This content was produced with the help of AI tools and was reviewed and published editors.

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