The Fed Just Put AI on Its List of Inflation Shocks, Next to Tariffs and Oil Omor Ibne Ehsan Wed, October 7, 2026 at 10:35 AM EDT 4 min read MU NVDA CL=F Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Daly called AI a lasting inflation shock as MU's gross margin surged to 87% and NVDA absorbs what it calls extreme memory pricing.
Hyperscalers fund nearly $800 billion in 2026 chip spending from cash flow, making rate hikes nearly powerless at cooling AI demand.
Micron has locked in $32 billion in customer commitments with new supply not arriving until late 2028, extending its pricing power runway.
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Memory chips sit on the Federal Reserve's inflation worry list. San Francisco Fed President Mary Daly grouped artificial intelligence with tariffs and Middle East oil prices as the three shocks driving inflation.
Daly said she was "very pleased, very supportive of the rate hike we took in September". That quarter-point move on September 16 set the target range at 3.75% to 4.00%, the first increase since 2023.
Chip stocks barely reacted on October 6, 2026, as NVIDIA (NASDAQ:NVDA) closed at $239.24, up 0.14%. Micron Technology (NASDAQ:MU) fell 1.73% to $1,045.56.
Daly's view supports Micron's pricing, but lasting chip inflation keeps rates high, and the 10-year Treasury yield reached 5.31% on October 5.
She attached a condition to that support. If tariffs, oil and AI prove ordinary shocks that fade, she said, "we may not need more" rate hikes.
She was less relaxed about AI chips: "I see it less as a one-off," adding, "This is probably further out before we get relief" and "It doesn't seem like the demand for AI is going down."
She pointed to companies locking in memory contracts and redesigning products to use fewer chips, and warned that shortages could spread to cars and appliances, the way the post-pandemic chip shortage pushed up car prices.
Her tone has changed since June 2026, when she said AI was not driving inflation.
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Daly said, "These hyperscalers aren't very interest rate-sensitive." Hyperscalers are giant cloud companies that pay for purchases from operating cash flow, so higher borrowing costs barely touch them.
NVIDIA expects capital spending by the top five hyperscalers to reach nearly $800 billion in 2026 and $1.3 trillion in 2027. Slowing that with rates would squeeze households and small businesses much harder first.
A shortage ends when new factories add supply, which interest rates cannot speed up. Micron's Idaho ID2 and Japan expansions are not expected to start output until late calendar 2028.
Micron's gross margin was 87.0% last quarter, up from 45.7% a year earlier. It has sold most of its calendar 2027 HBM supply at significantly higher prices. HBM is high-bandwidth memory built into AI chips.
NVIDIA buys that memory, and management said, "We are experiencing extreme pricing conditions in memory," and expects gross margin to bottom at 71% to 72% in Q4. For a company worth about $5.78 trillion, that is a small margin squeeze.
A Fed official expects AI chip relief to take a long time, and Micron is the company charging those prices, which likely keeps its pricing power intact for longer than the market assumes.
Micron's revenue is unusually well protected. Its 26 strategic customer agreements carry $32 billion in customer commitments, mostly cash deposits.
Micron is up 266.56% year to date. If rates stay high, investors may pay less for each dollar of earnings.
For this theme, Micron has more direct exposure than NVIDIA, because NVIDIA has to absorb the memory costs that Micron takes in, while Micron books them as revenue.
Micron expects gross margin of about 86.25% in fiscal Q1 and calls that the low point for fiscal 2027. If the next earnings report comes in below that, the pricing-power case weakens.
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