\n Prices and interest rates are rising too quickly for comfort for three primary reasons: the global energy shock from wars in Iran and Ukraine, an escalating trade war and an unprecedented corporate spending spree on artificial intelligence.\n <\/p>\n
\n Policy decisions (wars and tariffs) are garnering significant attention as gas and diesel prices surge<\/a> and a US trade war<\/a> buds with Canada. But economists are increasingly concerned about the mind-boggling amounts of Big Tech money committed to the AI data center buildout.\n <\/p>\n \n The many trillions of dollars expected to be spent on AI infrastructure over the next several years would facilitate a fundamental reshaping of the US economy. All that spending risks overheating the economy at a time when it\u2019s already running hot: The unemployment rate is low, and consumer spending is strong.\n <\/p>\n \n That\u2019s a recipe for higher inflation. And inflation is already too high<\/a>.\n <\/p>\n \n It\u2019s hard to overstate how extraordinarily massive the AI spending boom<\/a> has become after it rapidly exploded onto the scene.\n <\/p>\n \n AI infrastructure spending \u2013 on data centers and the chips and servers that go inside them \u2013 is expected to hit around $1 trillion this year, according to JPMorgan. That\u2019s more than the federal government spends annually on the military.\n <\/p>\n \n But we\u2019re just in the beginning stages of the AI buildout.\n <\/p>\n \n Through 2032, that number will reach $10.3 trillion, claims Columbia University economist Stijn Van Nieuwerburgh in a paper<\/a> published Wednesday by the Brookings Institution. For perspective: Remember the $1.2 trillion bipartisan infrastructure law signed by then-President Joe Biden in 2021 that became an inflation bugaboo? Projected AI expenditures are equivalent to spending every last dollar allocated from one of those bills each year over the course of a decade.\n <\/p>\n \n That spending \u2013 just on AI infrastructure, not on the technology itself \u2013 is on pace to comprise 1.9% of all US economic activity this year, according to Goldman Sachs. But that\u2019s forecast to effectively double: On average, AI infrastructure spending will top 3.6% of America\u2019s gross domestic product each year through 2032, according to Van Nieuwerburgh.\n <\/p>\n \n That projection is gargantuan, equivalent to the output from mammoth American economic engines, such as transportation, restaurants and hotels. But those are all mature industries. Even more shockingly, Van Nieuwerburgh projects the AI buildout will make up a larger share of total US economic output than any of America\u2019s previous investment booms \u2013 bigger than when the United States built its canals, railroads, electrical grid, highways and telecommunications networks.\n <\/p>\n \n \u201cAll of this will result in a structural transformation of the US economy to one organized around artificial intelligence,\u201d said Joe Brusuelas, chief economist at RSM US.\n <\/p>\n \n OK, so it\u2019s big. Really big.\n <\/p>\n \n There\u2019s nothing inherently wrong with that. If the tech companies are building something customers want, that wouldn\u2019t necessarily create an inflation problem. Supply and demand would be in balance. And if AI yields its promised productivity gains, that should prevent inflation from rising out of control.\n <\/p>\n \n But companies are still very much in the \u201cif you build it\u201d phase of this \u201cField of Dreams\u201d analogy. The promised revolution is still a long way away. The foundation needs to be constructed first.\n <\/p>\n \n In the meantime, the massive AI spending supercycle has created a developing economic problem.\n <\/p>\n \n \u201cA demand shock is creating inflation,\u201d said Daniel Yue, who teaches about the economic effects of AI at Georgia Tech.\n <\/p>\n \n Data center spending is already causing inflation to rise, because of off-the-charts demand for memory and storage chips, building supplies, electricity and laborers \u2013 construction workers, plumbers and electricians \u2013 to build the data centers. Prices for certain goods and services are going through the roof.\n <\/p>\n \n Supply constraints, regulations, the immigration crackdown, permitting issues and many other practical realities<\/a> have prevented all those goods and labor supplies from coming into balance with the extreme demand. And all of that is starting to permeate throughout the economy, showing up particularly in labor shortages and higher costs for building supplies across other industries.\n <\/p>\n \n That has raised alarm bells for Austan Goolsbee, president of the Federal Reserve Bank of Chicago.\n <\/p>\n \n In a speech in London<\/a> on September 21, Goolsbee said he is closely watching whether \u201cAI data center construction is spilling out of its own lane\u201d and creating more economic activity than the economy can absorb. If so, it could be a sign that demand is overheating.\n <\/p>\n \n \u201cAnd if demand overheats, there is no ambiguity about how the Fed needs to respond,\u201d Goolsbee said, predicting the central bank would have to further raise its target interest rate to help bring inflation down.\n <\/p>\n Too hot to handle<\/p>\n \n The massive amount of AI spending is coming on top of an already hot economy that never cooled down after its post-pandemic sugar rush.\n <\/p>\n \n US manufacturing activity in August was the highest recorded since July 2021, according to a Purchasing Managers\u2019 Index<\/a> reported by S&P Global last week. Unemployment is at 4.1%<\/a>, a level economists consider \u201cfull employment.\u201d US retail sales surged by 1.2% in August.\n <\/p>\n \n Those are not signs of a weak economy.\n <\/p>\n \n In large part, the already-hot economy has been fueled by an AI-fueled stock market boom. The eight most valuable stocks in the S&P 500 are all effectively AI companies, and they make up a combined 38.8% of the total value of the stock market.\n <\/p>\n![\"Nvidia](\"https:\/\/www.newsbeep.com\/ie\/wp-content\/uploads\/2026\/09\/gettyimages-2266460326-20260922212758996.jpg\")
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