Fed’s Williams sees AI supply squeeze lasting beyond 2 years

New York Fed President John Williams said AI equipment supply could take more than two years to catch up with demand, which could add to inflationary pressure.

Williams made the comments during an interview with Bloomberg on Tuesday, saying that the buildout of AI infrastructure is pushing up chip prices and goods that use them.

Asked whether supply and demand within AI would become more balanced over the next two years, Williams said: “I think it’s going to take longer. Assuming the demand kind of impulse continues as expected, and that’s a big assumption.”

William’s comments came as he reaffirmed his view that the US Federal Reserve may need to raise interest rates once more this year as it seeks to lower inflation. 

“I haven’t changed my view that it may be appropriate to have one more rate hike.”

However, Williams said “we’ll have to see” about 2027, saying “I don’t think at this time I have any reason to believe that we would need to do more.” 

Meanwhile, Williams said he expects AI investment to stay strong even with higher rates. 

“I think investors there are relatively price insensitive,” he said. “They feel that this is a huge, going to lead to huge productivity gains, huge transformative changes in our economy, and I think that happens not completely invariant to interest rates, but I don’t expect monetary policy to be really having a deep effect on that.”