Fed Chair Kevin Warsh Has a New Inflation Nightmare: AI Is Skyrocketing Prices

The article argues that AI-driven demand for compute is reversing a four-decade disinflationary trend in semiconductors, with producer prices for chips now rising. Key evidence includes a 435% jump in the bill of materials for NVIDIA’s NVL72 rack and NVIDIA’s $75.25 billion data-center revenue (up 92% YoY). That shift is lifting PCE to 4% headline and core PCE to 3%, while the fed funds rate sits at 4% and the 10-year yield approaches 5%. New Fed Chair Kevin Warsh may have to keep policy tighter for longer to prevent a second inflation wave. Market impact: elevated producer prices and sticky services inflation raise the baseline for interest rates and increase policy uncertainty — a negative for rate-sensitive growth assets and potentially supportive for inflation hedges (e.g., gold). Investors should prepare for “higher for longer” rates and size positions accordingly.