Tech executives and Wall Street are urging the Federal Reserve to factor artificial intelligence's cost-cutting potential into interest rate decisions, arguing the technology will be "massively disinflationary." Kevin Warsh, Donald Trump's nominee to lead the central bank, has made similar arguments, suggesting AI could enable the rate cuts the administration desires.

The theory has merit — AI can automate tasks, boost worker productivity and lower costs. However, Census Bureau data shows fewer than one-fifth of US companies had adopted LLMs by the end of 2025. A global study found over 80% of senior executives report no measurable AI impact on employment or productivity yet.

Near-term infrastructure spending is actually inflationary. Capital expenditure on data centres among hyperscalers is projected to reach around $700bn this year, while power requirements for training models may pressure energy prices. The Bank for International Settlements notes that AI's ultimate impact on inflation depends on whether supply gains outpace potential demand pressures.

Policymakers should monitor AI adoption closely, but the technology's effect on prices remains far too uncertain to confidently shape interest rate decisions today.