FED'S WILLIAMS: AI BOOM IS FUELING INFLATION, BUT ECONOMY IS NOT OVERHEATING

NEW YORK FED PRESIDENT JOHN WILLIAMS SAYS AI INFRASTRUCTURE DEMAND IS PUSHING UP CHIP PRICES, CONSTRUCTION COSTS AND INFLATION, WITH SUPPLY UNLIKELY TO CATCH UP FOR SEVERAL YEARS.

KEY TAKEAWAYS:

* RATES: ONE MORE HIKE IN 2026 MAY BE APPROPRIATE; NO ADDITIONAL HIKES CURRENTLY EXPECTED IN 2027.
* INFLATION: EXPECTED TO APPROACH 2% IN 2027.
* AI: STRONG DEMAND COULD KEEP CHIP PRICES ELEVATED.
* ECONOMY: LABOR MARKETS REMAIN STABLE, WITH NO BROAD OVERHEATING.
* TREASURIES: HIGHER LONG-TERM YIELDS ARE TIGHTENING BORROWING CONDITIONS.

WILLIAMS EXPECTS AI PRODUCTIVITY GAINS TO EVENTUALLY HELP REDUCE INFLATION.

FED'S WILLIAMS SEES ONE MORE RATE HIKE IN 2026, NONE IN 2027

NEW YORK FED PRESIDENT JOHN WILLIAMS SAYS ONE ADDITIONAL RATE HIKE MAY BE APPROPRIATE THIS YEAR, BUT HE CURRENTLY SEES NO NEED FOR FURTHER INCREASES IN 2027.

WILLIAMS EXPECTS INFLATION TO MOVE CLOSER TO THE FED'S 2% TARGET NEXT YEAR AS TARIFF AND ENERGY SHOCKS FADE.

HE ACKNOWLEDGED AI-DRIVEN INFLATION PRESSURES BUT SAID THE BROADER ECONOMY IS NOT OVERHEATING.

MARKETS CURRENTLY PRICE IN A DECEMBER HIKE AND TWO MORE IN 2027, MAKING WILLIAMS' OUTLOOK NOTABLY LESS HAWKISH. - *WALTER BLOOMBERG ...