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Mike Dolan: ROI-AI is creeping onto Fed radar but its footprint so far is very small.

AI is sweeping the markets, construction, and corporate planning. The Federal Reserve's most closely watched inflation and employment data shows that its impact on these numbers is too small to make a difference in policy, at least not yet. It's difficult to ignore the AI boom for most financial markets. This year, chip stocks have soared and fluctuated wildly around the globe. The growth of tech earnings has been explosive, and so-called AI Hyperscalers are 'borrowing' hundreds of billions in financing to build out their AI systems. There's no doubt that policymakers will be closely monitoring the long-term?effects? of AI adoption on the demand for workers, the productivity of the economy and the speed limit. One of Fed Chair Kevin Warsh’s task forces to reform Fed thinking in the long-term focuses on jobs and productivity, and will place the AI revolution under policy scrutiny. More than half way through 2026, the inflation and labor data are showing only slight blows. And measurement issues remain a problem. The July consumer price report released this week showed some pressure on computer and equipment prices. There has been debate within the Fed about the role of "software and accessory" components in driving core goods inflation for the Fed's preferred personal consumption expenditures basket (PCE). The PCE index weighting of software and accessories, although the methodology is questioned, is 30 times greater than the CPI. In the first half of this year, it accounted for over half of the annualised core goods inflation, which was above 5%.

Software and accessories are only 1.2% of the PCE basket. Apple's price increases last month showed that the "chipflation", or shortage of memory in AI data centers, could affect other products containing chips. There are also bottlenecks with the demand for computers and other equipment. Morgan Stanley economists point out that the July CPI showed that tariff-related price increases are peaking, but this has been offset by AI-affected pricing which is pushing goods categories up again. They added that the AI-driven price increase is spreading to other categories than just software and accessories. The July CPI report showed a 3.5% rise in personal computers and peripherals, which was likely due to Apple’s increases.

The weight of "information technology hardware and services" in the CPI basket remains at just under 2%, dwarfed by the mega-weightings of housing and shelter, transportation and even apparel. Of course, the wider influence of chip and information-technology inflation beyond these categories bears watching. These costs are directly reflected in the PCE. It will be difficult for the Fed, however, to separate the data from AI and isolate it as a single component.

THE OTHER MANDATE Over the next few years, the Fed's other dual mandate -- maximizing employment -- will have the biggest impact on monetary policy. AI could, as some fear, displace workers, rather than help them. This would lead to a weaker wage and household demand. Businesses may also benefit from a boost in productivity. If this were to happen, it would lead the Fed to change its policy. Like inflation, this effect can be seen in certain hiring and job surveys and data cuts, but it is harder to prove its impact on the broader measures of unemployment and job creation. Challenger, Gray and Christmas, a global outplacement firm, reported last Thursday that the number of planned job cuts in July by U.S. employers fell 27%, to 33,429, which was the lowest in two years.

It also stated that layoffs continue to be announced, primarily in the?tech. Andy Challenger, the author of the report, said that "artificial intelligence" is still the main story as investments in technology reshape companies. AI adoption is affecting other sectors than just the tech industry. According to the most recent payroll data, insurance jobs have fallen by more than 80,000 in the last year. Deutsche Bank strategists note that according to the Challenger survey, AI is responsible for 30-40% of job cuts in the past three months. In the Challenger report, AI was cited as the main reason for job losses. A third of layoffs were attributed to the technology. This is the fifth month in a row that it has been the top reason. The Fed will also be affected by accurate measurement when it comes time to crunch the numbers. AI could be exerting pressure in a stable economy, as evidenced by the falling unemployment rate and low claims for joblessness. AI will most likely have "big economic impacts in the future, but the Warsh Task Force will have to look into a crystal-ball for clarity instead of relying on the existing data. The data is still too ambiguous to be able to influence the policy meeting in September.

The opinions expressed are those of Mike Dolan a columnist at. This column is great! Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.

(source: Reuters)