Apollo Global Management Chief Economist Torsten Slok has delivered a blunt assessment: the early-stage AI infrastructure boom will intensify inflationary pressures, making it difficult for new Federal Reserve Chair Kevin Warsh to cut rates as swiftly as markets expect. "We may need to wait a while longer, because the initial phase of the AI boom will inevitably push inflation higher," Slok stated.
He pointed to clear inflationary signals across semiconductors, energy, and labor costs. This assessment cuts to the core contradiction behind the AI boom: while proponents tout its economic growth potential, the technology's impact is already rippling through labor markets, monetary policy, and beyond. Fears of AI-driven unemployment are overblown, but the scale of capital pouring into AI infrastructure is unprecedented.
Record Capital Spending Drives Costs
U.S. tech giants plan to deploy up to $725 billion in capital expenditures this year, predominantly for AI data center equipment procurement. This concentrated spending is transmitting price pressure through multiple channels. Semiconductor supply chains remain strained by surging AI chip demand, energy requirements are climbing as data centers expand, and specialized labor markets face supply bottlenecks.
Monetary Policy Faces a New Variable
Warsh has previously argued that AI-driven productivity gains would pave the way for looser monetary policy. Slok's view, however, reveals a tension between short-term and long-term dynamics: before the long-term productivity dividend materializes, the demand shock from near-term infrastructure investment may push prices higher first. Warsh's predecessor, Jerome Powell, faced fierce criticism from Trump for the pace and magnitude of rate cuts. Now Warsh confronts a fundamentally different inflation driver.