Alberto Musalem, President of the Federal Reserve Bank of St. Louis, stated on Thursday that policymakers cannot rely on a potential productivity boom from artificial intelligence to alleviate current inflation issues and warned that the possibility of future interest rate hikes cannot be ruled out.

Speaking at a conference in Reykjavik, Iceland, Musalem noted, "I believe it is risky to depend on the prospect of higher future productivity growth to solve our inflation problems today." While acknowledging himself as an avid user of AI and expressing optimism about the technology's long-term potential to boost the economy, he also observed that market enthusiasm for AI is driving up demand for electricity and chips, boosting stock prices of related companies, which in turn could prompt the central bank to raise rates.

Simultaneously, newly released economic data has heightened inflation concerns. Data from the U.S. Bureau of Economic Analysis on Thursday showed that the Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, rose 3.8% over the 12 months ending in April. Additionally, futures contract pricing indicates that investors are betting with over a 50% probability that the Fed will raise rates before year-end.

In an interview with Bloomberg Television, Musalem stated that he agrees with some officials who wanted the Fed to remove language hinting at an "easing bias" regarding the direction of rates from its April policy statement. He emphasized, "Our mandate is price stability and maximum employment. Currently, inflation remains above target. Therefore, the possibility or probability that we consider raising rates in the future—I believe it must be greater than zero."

Regarding the recent rise in U.S. Treasury yields, Musalem estimated that about three-quarters of the increase stems from the market's rising expectations for the neutral policy rate, with only one-quarter attributable to the so-called term premium, which is considered to have a more direct impact on financial conditions.

The Fed's next policy meeting is scheduled for June 17-18, which will also be the first meeting chaired by the new Chair, Kevin Warsh. Warsh has previously stated that AI could trigger a productivity boom, enabling non-inflationary growth accompanied by lower interest rates. Musalem maintains a more cautious stance, believing that in the current environment, one should not overly rely on AI's long-term benefits to solve immediate inflationary pressures.