The AI Build-⁠Out Enters the Fed’s Inflation Case

LONDON, Nov. 10 — ChristopherChristopher Waller, a governor of the Federal Reserve, said in London on Tuesday that he would support raising interest rates by a quarter of a percentage point in December even if October’s consumer prices, due hours later, showed an improvement. If the October figures resembled the past two months’, with core prices up about 0.3 percent or more, he said, a half-point rise “should be considered” at the December meeting.

Among the things he would be watching, he said, was “whether high-tech goods prices related to the AI buildout continue to rise at the very high rate of recent months.”Held in OctoberAt the Fed’s most recent meeting, on Oct. 27–28, Mr. Waller voted with the majority to hold rates steady, he said, because markets had already priced in some tightening.

By naming those prices, Mr. Waller put the artificial-intelligence build-out on both sides of the Fed’s ledger. In the same speech, he pointed to it as a source of growth: real output rose at a seasonally adjusted annual rate of 3.4 percent in the third quarter, by the initial estimate, supported by “robust investment,” and business investment “continued to surge, especially in high-tech equipment associated with the artificial intelligence (AI) buildout,” he said. Now the prices of that equipment figure in his argument for dearer money, which could raise the cost of new borrowing and refinancing for those financing the build-out.

“Federal Reserve staff have been thinking hard about the effects on inflation of the AI buildout and elevated energy prices, and their findings do not encourage me to think that these factors will be fading anytime soon,” Mr. Waller said. One study he cited, a Fed staff note published on Oct. 1, turned purchasing managers’ answers to the Institute for Supply Management’s monthly surveys into indexes of price pressure.Read by a MachineThe note’s authors sorted the goods that purchasing managers named into about 50 categories like those of the producer price index, by two methods, one of them Anthropic’s Claude Sonnet 4.5; they found the two broadly agreed. Its index for high-tech products rose in December 2025 and jumped in January, ahead of a rise in prices that showed up in February’s producer price figures, Mr. Waller said.

The note’s authors described the high-tech index as representing “predominantly memory chips and processors.” Its rise, they wrote, was “consistent with rising memory prices amid the AI buildout,” in which data centers’ demand for high-bandwidth memory had led chipmakers to shift capacity toward accelerators and AI memory. That, they wrote, “has tightened the supply of conventional DRAM and NAND and pushed up prices across the memory category.” The latest survey data, for October, “point to the possibility of more price increases ahead,” Mr. Waller said.

What the Figures Show

The government’s own price figures, through September, show where the pressure is, and where it is not. Producer prices for computer storage devices were 87.3 percent higher in September than a year earlier, and those for printed circuit assemblies, loaded boards and modules 130.0 percent higher, by the Bureau of Labor Statistics’ indexes. Prices of imported computer accessories, peripherals and parts rose 49.9 percent, and of imported semiconductors 15.8 percent.Three Kinds of IndexProducer price indexes measure “the selling prices received by domestic producers for their output,” in the bureau’s words; import price indexes, the prices of goods the United States buys abroad; the consumer price index, what urban consumers pay. The producer figures for June through September are preliminary and may be revised; September’s import figures may also still be revised.

Elsewhere the rises are small, or absent. Producer prices for electronic computers rose only 3.0 percent in the year, and those for integrated circuit packages, including microprocessors, 1.8 percent. Prices of other American-made semiconductor devices, including transistors, diodes and wafers, fell 8.2 percent, and the index for the semiconductor industry’s output as a whole was 2.2 percent lower. Power equipment rose more modestly: transformers 7.8 percent, and turbines and turbine generator sets 3.6 percent.

Nor are the steepest producer increases still running at full speed. The storage index rose 56 percent between April and July, then rose less than 1 percent more through September. The index for boards and modules rose 92 percent between December and April and 12.6 percent in August, then slipped 2.0 percent in September. In the shops, the consumer price index for computers, peripherals and smart home assistants was 9.7 percent higher in September than a year earlier, and rose 1.4 percent from August alone, before seasonal adjustment.

None of these indexes says why a price moved: the link to the AI build-out is Mr. Waller’s, and his staff’s. The figures fit their account in one respect. The steepest rises are in storage devices and in boards and modules; the Fed note’s seed terms for its memory category include SSDs. They do not show a general surge in the price of computing: the domestic indexes for electronic computers and for integrated circuit packages rose only 3.0 and 1.8 percent.

What to Watch

October’s consumer prices are due at 8:30 a.m. Eastern on Tuesday, and producer prices for October at 8:30 a.m. on Friday, Nov. 13; the Fed meets Dec. 8–9. Before the speech, markets were pricing in an 84 percent probability of a quarter-point rise in December, according to CME FedWatch data cited by Investing.com on Monday evening. If core prices again rose around 0.3 percent or more, Mr. Waller said, a quarter-point would not do: “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

Investors had been buying the build-out’s suppliers: chip shares led Wall Street’s rebound on Monday, the PHLX Semiconductor index rising 6.85 percent. For the makers of memory and storage, high prices are revenue; for those building data centers, a cost. For one Fed governor, they are now a reason to read the 8:30 figures closely.