AI’s costly buildout complicates the Fed’s inflation fight

Silicon Valley leaders from Elon Musk to OpenAI CEO Sam Altman have hyped the deflationary effects of the artificial intelligence boom.

"Intelligence too cheap to meter is well within grasp," Altman wrote recently.

Musk, the CEO of Tesla and SpaceX and the world's richest person, has argued that AI and robotics will create extreme abundance and drive down cost. SoftBank's Masayoshi Son said he expected a 40% drop in prices and that "unnecessarily hard work, sweating work, would no longer be needed."

Instead, AI is hitting a wall of corporate inertia as it spreads out into the economy — causing some near-term inflation and producing little evidence of a sustained productivity boom.

Company adoption has proved slower than some of the boosters promised. Meanwhile, the tech industry's multi-trillion-dollar spending spree on data centers and AI infrastructure has snarled supply chains. Spending to build out AI is raising prices in sectors like electricity. Costs are piling up before the full-scale payoff arrives. That poses a dilemma for the Federal Reserve, which needs to make decisions about how to manage inflation.

Some of the immediate costs of AI are easier to spot than the potential benefits, said Ronnie Chatterji, chief economist for OpenAI .

"For it to impact the economy, it has to be adopted by organizations," Chatterji said. "Those organizations have to realize value."

While that is happening, Chatterji acknowledged that "it'll still be a little while before we see it sort of clearly for productivity statistics."