Massive AI spending is driving up prices on laptops and electricity, as the Fed watches closely

Investment in AI data centers could exceed $700 billion in 2026, pushing up inflation. American consumers — and the Federal Reserve — are being hit with another high-cost headache.The gusher of investment in data centers — likely topping $700 billion this year — to power artificial intelligence has made memory chips, computer processors and other equipment, as well as electricity, more expensive. Economists expect it will continue to push up inflation at least through the end of this year.While it won’t be as large a spike as occurred in 2021-2023, when inflation peaked at 9.1%, massive AI spending is likely to keep prices rising more quickly than the Federal Reserve would like. Such increases could lead the central bank to lift its key interest rate later this year to cool spending and bring down inflation. Higher rates from the Fed often boost borrowing costs for auto loans, mortgages, and business loans.Fed officials will closely watch June’s inflation report, to be released Tuesday, for further signs of AI’s impact on prices. Inflation last month likely cooled as gasoline prices have fallen after a ceasefire was reached between the U.S. and Iran, though whether that trend continues is now unclear as the U.S. and Iran have resumed fighting.