Axios Macro

February 27, 2026
Today, we offer some early thoughts on what we see as a seismic question for economic policy in the months and years ahead: how macroeconomic policy should respond to the rise of generative artificial intelligence.
- Plus, an uncomfortably hot wholesale price reading for January just dropped.
👀 Situational awareness: Look out below! U.S. 10-year Treasury yields dropped below 4%, down roughly 0.3 percentage point from a month ago. Trump administration officials might be cheering, but investors could be signaling concern about the economy.
Today's newsletter, edited by Jeffrey Cane and copy edited by Katie Lewis, is 881 words, a 3.5-minute read.
1 big thing: How AI complicates things for the Fed

An epic capital spending boom is squeezing certain prices higher, while promising sharp productivity gains and potentially huge job losses. What's a central banker to do?
The big picture: The AI boom is likely to affect the appropriate monetary policy in multiple ways, with some effects pointing to higher rates and others toward lower. Those different impacts will play out on different timelines and with different magnitudes.
- It creates a gnarly set of crosscurrents and considerations, the resolution of which will likely prove to be the Federal Reserve's defining judgment calls in the second half of the 2020s.
- "Problematically, AI can realistically shift the economy in different directions over different horizons, reducing clarity on how monetary policy should respond," Tim Duy and Josh Lehner, economists at SGH Macro, wrote in a note.
Zoom out: President Trump's nominee to lead the Fed, Kevin Warsh, has argued that the massive productivity surge he anticipates from AI will allow rapid, non-inflationary growth.
- That would tend to justify lower interest rates than one might expect amid eye-popping GDP growth numbers.
- But there are also other ways the AI buildout and its ripple effects can impact the overall economy. And those may help shape the interest rate policy that best achieves the Fed's dual mandate of stable prices and maximum employment.
Zoom in: Higher productivity growth and capital spending tend to raise the neutral interest rate — the rate that neither stimulates nor slows the economy — due to higher demand for investment.
- That means that, all else being equal, the Fed should keep rates higher than they might otherwise.
State of play: The AI boom is also likely to have fewer theoretical impacts on the two sides of the Fed's dual mandate, inflation and jobs.
- The massive AI buildout is creating extra demand for electricity, semiconductors and construction inputs, and there's evidence it is contributing to near-term inflation, at least for certain goods and services.
- In Cedar Rapids, Iowa, employers want to talk about how "nobody can hire an HVAC person because data centers are absorbing all the people," Chicago Fed president Austan Goolsbee told reporters this week. "Stuff's getting expensive because they're competing for all the same factors of production, in economist-speak."
- At a time when inflation has been running above the Fed's target for five consecutive years, anything that further heightens those inflationary pressures, even if temporary, is unwelcome.
On the employment side of the Fed's mandate, if employers find far-reaching labor-saving results from AI technology, it could create a surge in unemployment.
- If that happens, Fed policymakers will have to decide whether they believe the job losses are part of a normal process of labor reallocating toward new jobs, which rate cuts can help speed along, or have created structural joblessness, which rate cuts can't do much about.
- A fear is that "our normal demand-side monetary policy may not be able to ameliorate an AI-caused unemployment spell without also increasing inflationary pressure," Fed governor Lisa Cook said in a speech this week.
The bottom line: With these enormous forces affecting the economy, it becomes nonobvious whether it means rates that should be higher or lower — and when.
2. 🔥 The hot inflation reading


January was a worse-than-expected month for inflation: Producer prices jumped 0.5% last month, double the pace expected by economists.
Why it matters: The Consumer Price Index two weeks ago delivered good news on inflation. But today's PPI complicates that story, suggesting price pressures remain stubborn.
Zoom in: The government said that the hot PPI reading was a result of steep price increases on the services side of the economy. Wholesale services prices rose by 0.8%, the largest increase since July.
The other side: Goods prices declined by 0.3%, the largest decrease since March, before the "Liberation Day" tariff increases.
Between the lines: Some Fed officials have flagged sticky service sector inflation as one reason to keep rates on hold.
- For instance, Goolsbee said this week that the "troubling flag ... has been that services inflation hasn't really improved that much."
Yes, but: "Companies have largely been able to absorb incremental costs while maintaining profit margins and minimizing the pass through to consumers," Global X's Scott Helfstein wrote in a note.
- "Producer inflation is worth monitoring, but it has not necessarily translated into broader inflation across the economy, and the Fed is likely keeping a close eye on that," he added.
The intrigue: Economists are raising their January estimates for the Personal Consumption Expenditures Price Index, the inflation gauge tracked by the Federal Reserve.
- Bank of America estimates that core PCE — that is, excluding food and energy prices — will come in at 0.4% in January, with a year-on-year rise of 3.1%, which would be the highest since 2024.
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