Cleveland Federal Reserve President Beth Hammack issued a stark warning on Tuesday, indicating that the escalating demand for artificial intelligence infrastructure is acting as a powerful inflationary force within the economy. Addressing attendees at the European Central Bank Conference in Sintra, Portugal, Hammack articulated her concern that if this intense demand and other price pressures persist, the central bank may have no choice but to push interest rates higher to rein in inflation.
"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."
Hammack pointed specifically to the AI sector, citing insights from a manufacturer in her district specializing in electric switching for data centers. This manufacturer described demand as "insatiable," noting that "hyperscalers will pay almost any price for those inputs, and they need things built yesterday." This observation underscores a broader trend she’s witnessing: a lack of economic restraint, particularly among large corporations. She highlighted that these businesses are not currently deterred from investment and growth by existing interest rates or credit spreads.
Federal Reserve Bank of Cleveland President and CEO Beth Hammack speaking with CNBC from Sintra, Portugal, on June 30, 2026.
CNBC
While Hammack acknowledged that AI could have "impacts in both directions," her stance presents a contrast to Fed Chairman Kevin Warsh. Warsh has previously articulated a belief that productivity gains spurred by AI technology would ultimately lead to disinflation through reduced labor costs. However, both Hammack and Warsh share a firm commitment to achieving the Fed's inflation target.
"If inflation continues to persist at these elevated levels and I don't see any restraint from policy, we may need to raise rates to bring that policy restraint in and to bring inflation back down," Hammack reaffirmed. As a voting member of the rate-setting Federal Open Market Committee (FOMC) this year, her perspective carries significant weight. The FOMC recently opted to hold its key overnight interest rate steady, aligning with market expectations, but indicated a quarter-percentage-point increase is still anticipated this year.
