Moody's Economist Says AI Is Fueling Inflation That Won't Quit
Mark Zandi warns AI is supercharging inflation just as May PCE hits its hottest level since April 2023, crushing rate-cut hopes.
If you're holding your breath for a Fed rate cut before New Year's, Moody's Analytics chief economist Mark Zandi just punched you in the gut. He appeared on CNBC with a read on inflation that's anything but market-friendly, and the data backs him up hard.
May PCE inflation clocked in at 4.07% year over year — the hottest print since April 2023. Strip out food and energy and core PCE still runs at 3.41%. Neither number is anywhere close to the Fed's 2% target, and Zandi's argument is that artificial intelligence isn't the disinflationary miracle Wall Street has been praying for. It's actually adding fuel to the fire.
Read more June Existing Home Sales Miss Hard at 4.09M Annual Rate →
Zandi's AI-inflation thesis is the kind of contrarian call that deserves your full attention. The conventional wisdom has been that AI boosts productivity, productivity kills inflation, and the Fed gets to cut. Zandi is flipping that script, suggesting AI investment and adoption are generating demand-side heat that's keeping prices elevated — and that this dynamic isn't a blip you trade through.
For active traders, this reframes the whole macro setup. Rate-cut bets were already shaky after a string of sticky inflation prints. Now you've got a credible, named economist at a major institution saying the force everyone thought would save the Fed is actually working against it. That changes the calculus on rate-sensitive plays — think REITs, small-caps, and long-duration bonds.
Bottom line: the "AI solves everything" narrative just took a serious hit from someone with receipts. Inflation above 4% with a structural driver behind it means higher-for-longer isn't a talking point anymore — it's the base case. Continue reading at Yahoo.
