Fed Governor Cook cites data center spending as key factor delaying inflation’s return to 2%

Federal Reserve Governor Lisa D. Cook has pointed directly at the AI boom’s insatiable appetite for physical infrastructure as a major reason inflation remains stubbornly above the central bank’s 2% target. In a speech delivered on September 28, Cook laid out a detailed case that data center construction and semiconductor demand are creating broad price pressures across the economy, not just in the tech sector.

The timing matters. Cook’s remarks came alongside a unanimous FOMC decision to raise interest rates by 25 basis points, a signal that the Fed sees enough persistent inflation to justify tightening further even as the economy absorbs the largest wave of capital spending in a generation.

The AI spending boom meets stubborn prices

Cook’s core argument is straightforward: roughly $2 trillion in AI-related capital expenditure has been announced, but only a small fraction has actually been deployed. That means the inflationary impulse from this investment wave isn’t close to peaking.

The spending is pushing prices higher across multiple categories simultaneously. Semiconductors, computers, software, construction labor, and energy resources have all seen price increases tied to AI-driven demand. When one sector competes for inputs that every other sector also needs, like electricity and skilled workers, the price effects spill over broadly.

Cook highlighted some specific numbers that paint a clear picture. Electricity and water costs have each climbed approximately 5% year-over-year in 2026. Core goods prices have been running above 3% on an annualized basis so far this year. Neither figure is compatible with a 2% inflation target, and both have direct connections to the resource demands of AI infrastructure.

Productivity gains won’t bail us out quickly

She predicted that productivity gains from AI will produce only “modest disinflation” over the next few years. That’s the Fed’s polite way of saying the cost-reducing benefits of artificial intelligence won’t arrive fast enough to counteract the price pressures from building all the infrastructure needed to run it.

The math gets even trickier when you consider that much of the announced $2 trillion in spending hasn’t materialized yet. As those projects move from planning to construction, they’ll add more demand for labor, materials, and energy.

What the rate hike signals

The 25 basis point rate increase that accompanied Cook’s speech reinforces the Fed’s message that it’s willing to keep tightening as long as inflation remains elevated. Cook emphasized that future policy decisions would remain data-dependent.

With core goods inflation above 3% and energy costs rising at 5%, the current trajectory doesn’t offer much comfort for anyone hoping rate cuts are around the corner.