Fed's Daly Warns AI-Driven Chip Demand May Prolong Inflation Shock, Shape Rate Path

San Francisco Fed President Mary Daly said AI-driven demand for chips and technology could extend an inflation shock beyond the one-to-three-year horizon the Fed normally looks through, potentially requiring further tightening. Daly told Axios she sees the pressure "less as a one-off," noting demand for AI "seems like it's going up." Her district includes Silicon Valley, where she said companies are seeking forward contracts for memory chips and reengineering products to rely less on semiconductors — signs the AI boom is affecting purchasing outside data centers. She affirmed her support for the Fed's rate hike three weeks ago, calling it "completely necessary" given rising inflation risks. Whether more is needed, she said, depends on whether shocks from tariffs, Middle East oil prices and AI prove temporary or compound. Daly noted hyperscalers are not very interest-rate sensitive, though they may become more so as they borrow to fund AI buildouts, while other AI investors remain rate-sensitive.