Fed: minutes highlight inflation and the risks posed by AI to financial stability
In the minutes of its 28–29 July meeting, which have recently been published, the FOMC discussed two distinct risks associated with artificial intelligence
In the minutes of its 28–29 July meeting, which have just been released, the FOMC discussed two distinct risks linked to artificial intelligence. The first concerns inflation. Some participants believed that the investment boom in the sector is already fuelling demand and price pressures, or will do so soon. The second relates to financial stability. Sharp rises in AI-related shares could, should tech earnings forecasts be revised downwards, trigger a widespread market sell-off and put pressure on financial institutions most exposed to the sector.
Fed economists have described the pressures on asset valuations as “high”, noting that the equity premium has fallen to a level last seen only during the dot-com bubble of the early 2000s.
On the price front, inflation remains high. Headline inflation, as measured by the PCE index, stood at 4.1 per cent in May, whilst core inflation was at 3.4 per cent. Economists had forecast a fall to 3.7 per cent and 3.3 per cent respectively in June. Many participants said that a rate rise will be necessary if inflation does not slow down, and the committee continues to see upside risks to prices.
Warsh proposes reducing FOMC meetings to six a year
Fed Chairman Kevin Warsh noted that “six scheduled meetings a year, held approximately every two months, would allow a greater amount of information to be gathered between meetings than under the current practice” of eight meetings, “whilst also giving decision-makers and staff more time to consider strategic monetary policy issues. The Chairman sought the Committee’s views on these matters; however, no decision was taken regarding possible changes to the meeting schedule, and the Chairman made it clear that any change to the current practice would not affect the schedule for the remainder of 2026”.
