Inflation Surges Amid AI Craze... US Interest Rate Hike 'Countdown'?

▲ US Federal Reserve (Fed), Bitcoin (BTC), Artificial Intelligence (AI) / AI-generated image

As the artificial intelligence (AI) investment craze pushed up semiconductor and electricity prices, discussions about interest rate hikes even emerged within the US Federal Reserve (Fed), triggering new liquidity warnings in the cryptocurrency market.

According to Cointelegraph, a cryptocurrency specialized media outlet, on July 9 (local time), the Fed was divided on whether to raise or freeze interest rates at its meeting last month. A majority of Federal Open Market Committee (FOMC) members stated, "Strong demand for artificial intelligence infrastructure is highly likely to sustain upward pressure on technology products and electricity prices."

Rising semiconductor prices for data centers and the competition to secure power are pushing up prices for electronic products, devices, and electricity. Fed members expected prices to remain high in the short term and judged that the risk to the inflation outlook was still tilted to the upside. They also pointed out that "if economic growth exceeds potential production growth, partly driven by strong investment in AI companies, inflationary pressures could persist longer."

The interest rate outlook also shifted towards a hawkish stance. Nine out of 18 Fed members expected at least one interest rate hike by the end of 2026, and six predicted two hikes of 0.25 percentage points each. The Fed's year-end Personal Consumption Expenditures (PCE) inflation forecast jumped from 2.7% to 3.6%.

The Fed froze the benchmark interest rate at 3.5-3.75% at its June meeting. The CME futures market reflects a 70% probability that interest rates will be maintained at the July 29 meeting. High prices and interest rates can pressure market liquidity and consumer spending power, increase borrowing costs, and burden risk assets like cryptocurrencies.

Nick Ruck, Director of LVRG Research, stated, "The massive build-out of artificial intelligence infrastructure promises future productivity gains while simultaneously driving up inflation through surging demand for semiconductors, energy, and data centers." The dual nature of expanding artificial intelligence investment—stimulating economic growth while also increasing price pressures—is complicating the Fed's monetary policy decisions.

[Article Key Summary]

-Fed members judged that the demand for artificial intelligence infrastructure could sustain upward pressure on semiconductor and electricity prices.

-Nine out of 18 Fed members expected at least one interest rate hike by the end of 2026, and the year-end PCE inflation forecast rose from 2.7% to 3.6%.

-The CME futures market reflects a 70% probability of an interest rate freeze at the Fed's July 29 meeting.

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