Housing has an AI problem, and the Federal Reserve has said so. As the midterms approach, a wave of anti-data-center sentiment and backlash against AI in general has been so sweeping that governors in red and blue states are imposing moratoriums on AI data center construction. In one recent poll, 75% of respondents said they’re against AI data center development.
So, with the unemployment rate at 4.1% and the economy still growing, what is the housing play here? Rates! If mortgage rates were between 5.75%-6%, you would see less hate here as housing demand would be growing, but if the Federal Reserve hawks keep talking about AI inflation, the hate toward AI will grow.
Why the Fed hates the AI boom
I am going to list statements from the Fed on this topic from two prominent Fed hawks who want to raise rates this year and have voted against other Federal Reserve board members. I could list a ton of examples, but I want to explain the core premise of why the Fed doesn’t like the AI boom. Remember, before the year started, the Fed was thinking of two to three rate cuts in 2026 and now we are talking about rate hikes.
In an interview with CNBC in June, Cleveland Fed President Beth Hammack said that “insatiable” demand for artificial intelligence infrastructure could be a source for inflation. “When I look broadly, particularly around large companies, I’m not seeing a lot of restraint in the economy,” she said.
Minneapolis Fed President Neel Kashkari echoed those sentiments at the Aspen Ideas Festival. “If we as a country are going to invest hundreds of billions of dollars in this new sector called data centers and AI, that capital comes from somewhere…There’s a higher return for the economy for that capital to build data centers than to build an apartment building. So data centers (are) a big deal. It’s having a near-term inflationary impact. It’s probably pushing up interest rates across the economy now and for the next several years.”
Other Fed members have also expressed concerns about AI inflation, rising electricity costs and how the AI boom has been fueling inflation above target, which goes against the Fed’s mandate of price stability. So, the Fed’s big shift from two to three rate cuts to two to three rate hikes has a big AI component. All this has happened with the unemployment rate at 4.1% and jobless claims low. So Fed hawks want back the interest rate cuts from last year.
Now we have a lot of other factors pushing rates higher this year: the labor data improved, the Fed set very low standards for the jobs market in 2026, and the conflict in Iran has pushed oil prices higher. On this episode of the HousingWire Daily podcast, I talked with Editor in Chief Sarah Wheeler about the other variable at play with rates — the national debt.
Conclusion
Yes, housing has an AI problem because the Fed sees it as an inflationary problem, and since 65%-75% of where the 10-year yield can move is Fed policy, AI has impacted the housing market negatively. Of course, it’s not the only reason; other variables are in play, but Fed hawks point to AI as inflationary pressure, not a disinflationary variable. So yes, housing has an AI issue.
I am not talking about other potential consequences of building data centers — including land being taken away from residential building toward data centers or residential construction going to build data centers instead of single-family homes. I am talking primarily about the Fed hawks making AI a big variable for why they want rate hikes, not cuts or staying neutral.