Fed's Bowman: AI Drives About a Quarter of US Excess Inflation

AI-related price pressures account for roughly one-fourth of above-target core PCE inflation in the 12 months ending September, Fed Vice Chair for Supervision Michelle Bowman said at the Council on Foreign Relations in Washington on Tuesday, November 10, 2026. Tariffs and energy each contributed a similar share. Core PCE is the Fed's preferred inflation gauge, excluding food and energy prices.

The figure is Bowman's own estimate. The Fed has published no such statistic. She added that 12-month core PCE likely climbed to 3.3% in October, and that the October consumer price index rose 0.4%, beating consensus forecasts.

What does this change for rate policy?

Bowman backed holding the target range at 3.75% to 4% in October and said policy follows no fixed course. She stopped short of endorsing a December hike, even as Governor Christopher Waller and Dallas Fed President Lorie Logan argued for more increases the same day. She still expects core PCE to move closer to 2% next year.

Early on November 11, futures priced an 88.5% chance of a quarter-point hike and an 11.5% chance of a half-point move. The FOMC meets December 8-9.

Why rate hikes barely touch AI inflation

The AI expansion, Bowman said, pushed investment demand toward high-tech equipment whose supply can't expand quickly. Prices for memory chips, semiconductors and computers rose by double digits — and monetary policy has limited influence over them, she argued.

That shortage works in NVIDIA's (NASDAQ:NVDA) favor. On its August earnings call, the chief executive said: "Even though our demand is much greater than 70%, our supply allows us to confidently deliver 70%." NVIDIA guidance points to $108.0 billion in third-quarter revenue.

Microsoft (NASDAQ:MSFT) sits on the paying side. Its quarterly capital spending hit $39.367 billion, with roughly three-quarters going to short-lived assets such as GPUs and costlier memory. Its commercial backlog stands at $677 billion.

A financing web on the Fed's radar

AI-related debt is on track to exceed $800 billion in 2026, Bowman said. Leases, contract commitments and residual value guarantees could add more than three times that amount — implying over $2.4 trillion on the source's own math.

She also flagged hyperscalers' equity stakes in smaller customers, saying they create "the appearance of circular financing." NVIDIA fits that pattern: its guarantee obligations are limited to $108.5 billion, and it has invested nearly $50 billion in frontier AI labs.

Her downside scenario was conditional. If AI revenue falls short of rising costs, AI stocks could face a sharp correction and tighter credit.

How the stocks stack up

Neither Tuesday's moves nor Wednesday's rebound can be clearly tied to her speech. NVIDIA closed Tuesday at $168.89, down 5.47%. It traded at $177.46 around 1:32 p.m. ET on November 11, up 5.07%, as a CoreWeave (NASDAQ:CRWV)-led rally lifted AI cloud stocks. Microsoft traded at $521.28, down 2.23%.

The source's own analysis: NVIDIA is better placed than Microsoft under the pressures Bowman described. It collects the price increases she outlined and trades at 34 times earnings after a -22.6% month. Microsoft trades at 30 times earnings and pays those higher prices. A December hike would raise borrowing costs for data center developers and cut the present value of profits expected years out — which hits growth stocks hardest.

NVIDIA's earnings report is expected November 17, though the company hasn't confirmed the date. A revenue miss beyond its 2% band would break the bull case.