--- title: "Apollo Chief Economist: The Stronger AI Gets, the Higher Inflation Rises, and the Harder Rate Cuts Become" type: "News" locale: "en" url: "https://longbridge.com/en/news/288340393.md" description: "Torsten Slok, Chief Economist at Apollo Global Management, warns that the initial phase of AI infrastructure construction will drive up costs for semiconductors, energy, and labor, exacerbating inflationary pressures and making rapid interest rate cuts by the Federal Reserve difficult. This view challenges the expectation held by new Chair Walsh that AI-driven productivity gains should facilitate rate cuts. Currently, the market estimates an approximately 80% probability of a Fed rate hike this year, with the April PCE index rising 3.8% year-on-year, as inflation remains stubbornly above the 2% target" datetime: "2026-06-02T00:11:49.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/288340393.md) - [en](https://longbridge.com/en/news/288340393.md) - [zh-HK](https://longbridge.com/zh-HK/news/288340393.md) --- # Apollo Chief Economist: The Stronger AI Gets, the Higher Inflation Rises, and the Harder Rate Cuts Become The boom in AI infrastructure construction is becoming a new variable in the Federal Reserve's monetary policy. Torsten Slok, Chief Economist at Apollo Global Management, warns that the initial phase of large-scale artificial intelligence construction will push up inflation, making it difficult to achieve the rapid interest-rate cuts expected by new Fed Chair Kevin Walsh. Slok stated on a Bloomberg TV program on Monday, "The AI boom is definitely inflationary in the early stages, and we may need to wait for some time." He pointed out that **price pressures are "very clearly visible in semiconductor prices, energy prices, and the labor market."** This judgment directly challenges Walsh's previous policy expectations—the latter had argued that productivity improvements brought by AI should open space for accommodative monetary policy. Currently, market expectations for the direction of Fed policy have shifted significantly. Traders now estimate an approximately 80% probability of a Fed rate hike this year, with the wave of AI construction driving up various costs, such as chips and electricity, being a major driver. The Personal Consumption Expenditures (PCE) price index rose 3.8% year-on-year in April, the highest since 2023, with inflation remaining stubbornly above the Fed's 2% target. ## Early Stage of AI Construction: A New Source of Inflationary Pressure Slok's core argument is that the economic impact of AI infrastructure construction has distinct phased characteristics. In the initial stage, **large-scale capital expenditure will significantly push up inflation, rather than suppress it.** **The largest U.S. tech companies plan to invest up to $725 billion in capital expenditure this year, mainly for the procurement of equipment for AI data centers. This massive wave of investment has directly driven demand for semiconductors, energy, and labor**, creating price pressure on the supply side. Slok explicitly stated, "We should actually expect AI data center construction to be inflationary in the early stages, not disinflationary." In addition, the lagged effect of tariffs and rising energy prices are also exerting simultaneous pressure, further exacerbating the stickiness of inflation. ## Walsh's Rate Cut Expectations Face Reality Test Walsh will preside over his first Federal Open Market Committee (FOMC) policy meeting after assuming the role of Fed Chair on June 16–17. He had previously publicly stated that AI-driven productivity improvements should create conditions for monetary policy easing, implying that the path to rate cuts might be smoother than market expectations. However, Slok's analysis indicates that **the realization of productivity dividends takes time, while inflationary pressures are immediate.** Before AI infrastructure construction is completed and productivity benefits materialize, the macroeconomic conditions for rate cuts are not yet mature. Notably, market expectations have reversed significantly. As recently as February 28, before the outbreak of the U.S.-Iran conflict, the market was betting on the Fed cutting rates more than twice within the year; now, expectations of a rate hike have become mainstream. ## Employment Concerns Overstated, but Monetary Policy Impact Cannot Be Ignored Although Slok holds a cautious view on the inflationary effects of AI, he also believes that external concerns about AI causing large-scale unemployment are exaggerated. **He stated that the impact of AI on the job market has been overly dramatized.** Nevertheless, Slok emphasized that the impact of the AI boom on the macroeconomy is far more complex and profound than single-dimensional discussions suggest—from the labor market to monetary policy, the reach of this technological wave is extremely broad. For investors, before the AI productivity dividend truly materializes, the combination of high inflation and sustained high interest rates may be the baseline scenario that needs to be priced in more heavily. Risk Warning and Disclaimer The market carries risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. 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