The Federal Reserve may catch a break on the inflation-fighting front if Goldman Sachs economists prove correct in a surprising new forecast.
“In short, the impact of AI demand on inflation is meaningful but moderate, still comes in large part from mismeasurement, and is likely near its peak,” Goldman Sachs economists Rindels and David Mericle said in a note on Wednesday.
The economists estimate that AI price pressures are currently boosting core personal consumption expenditures (PCE) inflation by about 45 basis points, of which about half reflects a genuine impact rather than mismeasurement. They expect this to peak at 50 basis points by the end of this year before declining to 10 basis points by the end of 2027.
“We expect the impact to decline next year mainly because our sector analysts expect memory and computer prices to grow at a significantly slower pace, which should reduce both genuine cost pressures and the impact of mismeasurement in the software and accessories category,” they added.
The Federal Reserve’s decision to lift interest rates in September came after sticky inflation readings, in part fueled by the AI boom and rising energy costs, forced central bankers back into tightening mode. The rate hike marked the central bank’s first increase since July 2023.
And the institution may not be done for the year on the rate-hiking front.
“I haven’t changed my view that it may be appropriate to have one more rate hike,” New York Fed president John Williams told Bloomberg on Tuesday. “I don’t think at this time I have any reason to believe that we would need to do more. But you asked 2027, we’ll have to see.”
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Sozzi Unleashed morning show, the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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