Quick Read
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Hassett cites 1.6% core CPI and 5% growth as proof expansion isn’t inflationary, with Goldman Sachs (GS) flagging AI as a 5-to-10-year growth catalyst.
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Ferguson expects two rate hikes, citing core CPI above 2.5% and five years of the Fed missing its inflation target.
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Supply-side capacity from factory builds and AI takes years to arrive while demand-boosting policies hit immediately, creating an inflationary gap the data hasn’t resolved.
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In a September 4 Bloomberg interview, National Economic Council Director Kevin Hassett argued that the U.S. economy is expanding quickly without generating inflation. This suggests that factory investment and AI-driven productivity could let the economy expand rapidly without forcing the Federal Reserve to raise interest rates due to inflation. Currently, the market is anticipating 60% odds of an interest rate hike.
5% Growth Without an Inflation Spike
Hassett cited falling inflation numbers: “If you look at the last three months, CPI, the core consumer price index at an annual rate, is only at 1.6%. So we think that while there’s a strong growth effect going on, it’s not inflationary,“ he said. On labor markets: “90,000 people that have jobs now building factories, they’re feeling the benefit. The people that are seeing their salaries go up so far this year, at 4%, they’re feeling the benefit.”
On what he thinks the Fed is going to do: “We respect the independence of the Fed. But I think that it’s been underreported, something that Chairman Warsh has been saying and emphasizing, and just did again at Jackson Hole, that growth doesn’t require the Fed to raise rates. It’s inflation that they need to really keep their eye on.“
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Why Faster Supply Growth Might Not Mean Higher Inflation
Hassett’s core claim is that growing the supply-side of the economy can drive economic growth without inflation: “If the growth comes from a big positive supply side, and effects like we’re building factories, we’ve got AI making everybody more productive, then that growth could happen without creating inflation.“
Prices rise when demand outruns productive capacity. If capacity expands with demand, output can grow without pushing prices higher. However, it takes time to build new supply. New factories take years to build and ramp, which means productivity gains from AI could take longer than expected. Demand from tax, tariff, and spending policies can arrive before new capacity comes online, creating inflationary pressure in that gap.
Not Everyone Is Buying the Low-Inflation Argument
On August 28, 2026, former Fed Vice Chair Roger Ferguson told CNBC that inflation has missed the Fed’s 2% target for roughly five years, described core CPI as running around 2.5% or higher, and expects two rate hikes. Treasury Secretary Scott Bessent, in an August 31, 2026 CNBC appearance, said core inflation remains restrained, aligning with Hassett.
Additionally, year-over-year wage growth slowed to its slowest pace in five years, and about one-third of jobs added were in lower-wage food and restaurant service work. Analyst Elizabeth Pancotti argued tariffs and geopolitical tensions are inflationary drivers keeping the Fed cautious. Energy remains volatile: gasoline averaged $4.15 per gallon on September 4, the highest for September on record, with diesel at an all-time high. Weekly Energy Information Administration data show the national regular-gas average at $4.07 per gallon on August 31, 2026.
AI Is the Wild Card in Hassett’s Growth Forecast
On August 31, 2026, Goldman Sachs (NYSE:GS) CEO David Solomon said AI offers an opportunity to run at a higher growth rate over 5 to 10 years.
Elon Musk put AI’s eventual boost to the global economy at roughly 20% to 30%.
Others, like Roger Altman, have cautioned that no one yet knows whether AI spending earns satisfactory returns. On August 31, 2026, JonesTrading’s Mike O’Rourke warned that debt-financed AI buildouts have made those companies rate-sensitive, tying these stocks even more closely to interest rate decisions.
Key Takeaways
If factories, investment, and AI expand the economy’s capacity fast enough, stronger economic growth doesn’t necessarily have to produce stronger inflation.
The next inflation reports will test that thesis. If inflation numbers are low, there’s a path to holding or cutting interest rates.
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