Waller: AI spending could fuel inflation for years

Federal Reserve Governor Christopher Waller said cost pressures from AI spending could last two to three years.

Waller said higher inflation expectations from AI are not the driver of higher U.S. Treasury yields. He said expectations for higher economic growth, general fiscal concerns and competition for investor dollars from AI bond issuance are the primary drivers.

Waller said the safety and liquidity premium on U.S. Treasurys is gone, which can contribute 50 to 70 basis points to higher yields. With rates on 10-year and 30-year government debt currently well above 5%, Waller said higher yields are doing some of the work that additional rate hikes might achieve.