Federal Reserve Vice Chair for Supervision Michelle W. Bowman said core personal consumption expenditures (PCE) inflation could move closer to the Fed’s 2% goal next year if price shocks fade, as AI financing risks complicate rate decisions. Speaking at the Council on Foreign Relations in Washington on Nov. 10, she said her views were her own.
Bowman estimated that 12-month core PCE inflation likely reached 3.3% in October; the figure is her estimate, not an official reading. The Bureau of Labor Statistics (BLS) reported that the consumer price index for all urban consumers (CPI-U) rose 0.4% from September on a seasonally adjusted basis. The index excluding food and energy rose 0.3%, while the energy index increased 0.7%. The BLS said it could not publish year-over-year October changes for some CPI series because October 2025 data were not collected during a lapse in appropriations.
Bowman estimated that tariffs, energy costs and demand related to artificial intelligence each accounted for about one-quarter of above-target core PCE inflation in the year through September. She attributed much of the remainder to the lingering effects of earlier price shocks. She said those pressures could ease enough to bring core PCE inflation closer to the Fed’s target next year.
Recent official data showed stronger growth and employment. The Bureau of Economic Analysis (BEA) put third-quarter gross domestic product growth at a 3.4% annual rate, up from 2.2% in the second quarter. The BLS reported that nonfarm payrolls increased by 165,000 in October, unemployment was 4.1% and average hourly earnings were 3.1% higher than a year earlier.
The Federal Open Market Committee (FOMC) voted 10-2 on Oct. 28 to hold its federal funds target range at 3.75% to 4%. Lisa D. Cook and Beth M. Hammack dissented in favor of a quarter-point increase; Bowman supported holding rates. “The benefit of additional policy tightening has to be carefully weighed against its costs for interest-rate-sensitive sectors,” she said. The Fed’s October lending survey also found weaker demand across all commercial real estate loan categories in the third quarter.
Bowman said AI-related debt was on track to exceed $800 billion in 2026. She said leases, contracts and guarantees could exceed three times that amount. In her assessment, disappointing AI revenues could sharply reduce AI firms’ share prices, raise financing costs and limit access to credit. She said AI adoption could boost productivity while displacing some workers, and warned that higher energy prices could reduce purchasing power, particularly for lower- and middle-income households.
The BEA is scheduled to release October PCE data Nov. 25, and the November employment report is due Dec. 4. The FOMC’s next meeting is scheduled for Dec. 8-9.
