U.S. Inflation Pressures Are Rising Across the Board; Chicago Fed President Warns: AI Investment Boom May Cause the Economy to Overheat

Chicago Fed President Goolsbee said on Wednesday that the U.S. September Consumer Price Index (CPI) report shows inflation pressures are spreading broadly, a trend he finds concerning. He also warned that the artificial intelligence (AI) data center construction and related investment boom could cause the U.S. economy to overheat, further increasing the difficulty for the Federal Reserve to control inflation. In an interview on Wednesday, Goolsbee discussed the U.S. September CPI data released that day, saying bluntly that the report was "disappointing." Data released by the U.S. Bureau of Labor Statistics on Wednesday showed that U.S. consumer prices rose at their fastest pace in five months in September, driven by higher fuel costs. Core CPI, which excludes food and energy prices, rose 0.3% month-over-month, indicating that underlying inflation pressures remain stubborn. Goolsbee pointed out that persistent services inflation shows that U.S. price increases are not limited solely to areas affected by supply shocks, such as categories of goods hit by tariffs and the Iran war. This means inflation pressures may be spreading to broader areas of the economy, rather than being driven purely by temporary factors such as rising energy prices. With inflation continuing to run above target, the Federal Reserve raised its benchmark interest rate in September to prevent further delays in the time needed for inflation to return to its 2% target. According to the interest rate projections published after the Fed's September policy meeting, the median forecast of policymakers showed that one more rate hike may be needed this year. Meanwhile, federal funds rate futures pricing shows that investors expect the Fed will very likely raise rates again in December. However, Goolsbee said it is still too early to judge whether the current rate level is sufficient to bring inflation back to the 2% target. In addition to traditional inflation drivers, Goolsbee is now more concerned about the potential impact of the AI investment boom on the U.S. economy. As technology companies continue to invest enormous sums in building AI data centers and related infrastructure, this round of investment expansion, while providing momentum for economic growth, may also stimulate aggregate demand and increase the risk of the economy overheating. Goolsbee warned that the Federal Reserve must prevent overheating pressures in the economy from building up. He noted that if overheating is driven by the demand side, the resulting inflation tends to be more persistent and more difficult to eliminate. "You have to prevent overheating pressures in the economy from building up, because once the demand side overheats, that situation tends to last a long time and is very difficult to eliminate." Goolsbee's latest remarks highlight the policy challenges currently facing the Federal Reserve. On one hand, energy prices, tariffs and geopolitical conflicts continue to push up prices; on the other hand, the rapid expansion of AI infrastructure investment may further stimulate economic demand, making inflation pressures more stubborn. Against this backdrop, future inflation data and the impact of AI investment on economic activity may become important factors for the Fed in judging whether further monetary policy tightening is needed.