# Inflation is cooling, but Morgan Stanley says 2 risks could pose new challenges for the Fed > Source: > Published: 2026-08-14 15:55:30+00:00 # Inflation is cooling, but Morgan Stanley says 2 risks could pose new challenges for the Fed [Business Insider](https://www.businessinsider.com) Morgan Stanley's top US economist sees overlapping inflation pressures from energy shocks and the AI buildout complicating things for the Fed. - Inflation has cooled this summer, easing concerns about spiraling consumer prices. - Morgan Stanley's top US economist sees lower CPI giving the Fed more breathing room. - However, two drivers of inflation could force the Fed to keep rates higher for longer. It's been a surprisingly cool summer on [the inflation front](https://www.businessinsider.com/cpi-inflation-july-consumer-price-index-2026-8), but there are still macro forces lurking that could cause the Fed to leave interest rates higher for long. Morgan Stanley's chief US economist, Michael T. Gapen, said in a note to clients on Friday that core consumer price index data shows inflationary trends are receding. In his team's view, this will likely pave the way for the Fed to be patient and not rush to take action on interest rates after opting to [hold them steady](https://www.businessinsider.com/3-biggest-takeaways-from-july-federal-reserve-decision-kevin-warsh-2026-7) at the July meeting. However, that forecast hinges on two key assumptions holding true. "Our inflation forecast assumes full payback from recent supply side shocks without a new shock appearing," he wrote. "It also assumes limited AI-related demand side price pressures, either through the direct effect of memory and software prices or indirect effects of animal spirits via strong demand." Gapen noted that either of these or both forecasts could prove incorrect. He highlighted two inflation risks that could complicate the Fed's outlook: an energy shock and the AI boom. The US' war with Iran has kept inflation from falling further in recent month, with [US households footing the bill](https://www.businessinsider.com/iran-war-cost-moodys-mark-zandi-inflation-recession-gas-prices-2026-6) for the historic disruption to global energy flows. Gapen is concerned about the possibility of further shocks spooking the central bank. "Following the recent re-escalation between the US and Iran, both spot and futures prices have risen meaningfully, renewing concerns about inflation," he stated. "This has reversed the temporary decline in oil prices that followed the signing of the MOU between the two countries." Meanwhile, Gapen also has concern about the impact of the AI buildout. He joins other bank commentators in predicting that, at least for now, [AI isn't going to be a disinflationary](https://www.businessinsider.com/ai-trade-inflationary-capex-buildout-bearish-for-stocks-interest-rates-2026-8) force in the economy. Gapen's analysis highlights the possibility that AI will raise the price of certain consumer goods, which could offset disinflationary trends elsewhere. Apple, for instance, has [raised prices](https://www.businessinsider.com/apple-price-increases-mac-ipad-memory-chip-tim-cook-iphone-2026-6) on some of its devices, with Tim Cook blaming the [shortage of memory capacity](https://www.businessinsider.com/apple-price-increases-memory-stocks-ai-mu-sndk-wdc-aapl-2026-6) driven by staggering demand from the AI buildout. "We believe tariff pass-through is largely complete and that core goods inflation will move closer to its pre-Liberation Day trend," he said. "We do not expect a full reversion, however, as AI-related demand is likely to keep upward pressure on electronics prices over the next few quarters." [Business Insider](https://www.businessinsider.com/inflation-outlook-economy-risk-federal-reserve-interest-rates-morgan-stanley-2026-8) Get AI news in your inbox Daily digest of what matters in AI.