Federal Reserve Chairman Kevin Warsh’s assertion that artificial intelligence will serve as a powerful disinflationary force is at odds with current macroeconomic data, according to analysts at BCA Research.

Warsh compares the present situation to the actions of Alan Greenspan in 1996-1998, when the former Fed chair held off on interest rate hikes in anticipation of productivity gains. However, BCA calls this historical comparison misleading. The primary driver of the late ‘90s disinflation was a collapse in oil prices to $11 per barrel, along with falling metal and agricultural prices, rather than a technological leap. Furthermore, the Fed’s own NAIRU estimates during that period were overstated, masking actual inflationary pressures.

In contrast, the current boom in AI investment is actively driving inflation upward. In the first quarter of 2026, capital expenditures by American tech firms reached 4.9% of GDP, surpassing the historical peak of the dot-com era in 2000. Equipment shortages, rising energy costs, and increased memory chip prices have already begun to translate directly into higher retail prices for consumer electronics.

An additional factor contributing to inflation is the wealth effect. According to the Fed, American households have accumulated $75 trillion in stocks, which is 230% of GDP compared to 130% at the peak of the Internet bubble in 2000. The personal savings rate has plummeted to 2.6%, well below the 2019 average of 7.3%. This supports elevated consumer spending, despite real disposable incomes having declined by 1.1% since April 2025.

Theoretically, Warsh’s logic is also vulnerable. Using the Solow growth model, BCA economists argue that rising productivity, a short depreciation cycle for AI assets (3 to 5 years versus the standard 11 years for non-residential fixed assets), and an increasing capital share in income point to an inevitable rise in the equilibrium real interest rate, rather than a decline.

While Kevin Warsh continues to assert in his columns for the Wall Street Journal that AI will conquer inflation, the CPI swap market predicts that inflation will remain above the Fed’s 2% target for at least the next two years. BCA sees only two unlikely scenarios in which AI could lead to lower rates: a sudden pullback in AI spending or catastrophic wealth inequality that would bolster the overall savings rate among the wealthy.