Economist highlights AI growth amid persistent inflation

Inflation was a core topic in a fireside discussion featuring Beth Ann Bovino, chair of the ABA’s Economic Advisory Committee. The conversation took place Tuesday, during the ABA’s annual convention..Asked for one word to sum up the state of the economy, Bovino, chief economist at U.S. Bank, chose: concentration.“The economy is incredibly strong right now, doing rather well – but it’s concentrated on really just one sector, and that is AI,” she said. “In the near term, AI is driving inflation. That investment is pushing up inflation because it’s crowding out other businesses. When we have hyperscalers looking for debt, looking for investors … that’s going to crowd out, and that does drive interest rates higher.”High costs can be seen throughout the AI continuum, from imported chips to the helium needed to supply data centers. “That comes from abroad, and there’s no substitute – so that also drives inflation,” Bovino said. Citing “incredible” domestic demand within the economy, Bovino underscored that “over half was driven by AI-related activity. That’s a big story. And when you have a small base, there’s more risk.”Yet, Bovino struck a neutral-to-positive tone on productivity gains that are starting to be generated from the AI investment, and the likely impact on employment.“I see more jobs are created because more business comes out of AI,” she said, noting that while AI will change work it will “not necessarily” replace jobs.Bovino called the persistence of inflation the main issue, saying “that’s what the Fed is worried about too.” While she correctly predicted the Fed would not raise rates this week, she reinforced her forecast for two more rate hikes in the months ahead: one in December and another in March.“In January of this year, I expected no rate hikes.” Bovino said. “You’re talking about two [or] three more added – that’s a pretty significant amount.”