The Fed is fighting again. It’s not the usual stuffy debate over basis points or the price of eggs in Ohio, either. The latest minutes from the Federal Open Market Committee reveal a room full of people who are paid to be certain, and right now, they’re anything but. They are staring at a rift that’s widening faster than a tech bubble in a low-interest-rate environment. On one side, you have the hawks, clutching their inflation charts like holy relics. On the other, the doves, worried that if they don’t cut rates soon, the whole engine stalls.

But there’s a new ghost in the machine this time. It’s AI.

For decades, the Fed had a simple, if boring, playbook. You move the levers, you watch the labor market, you wait for the lag. Now? The lag is being eaten by algorithms. The minutes show officials are deeply divided on whether the Silicon Valley hype cycle is actually moving the needle on productivity or just burning through billions in venture capital that could be better spent elsewhere. It’s a mess. A high-stakes, multi-trillion-dollar mess.

Let’s talk about the friction. There’s a specific, painful trade-off happening right now between the cost of capital and the cost of compute. If you’re a startup trying to lease a rack of Nvidia H100s, you’re looking at a price tag that starts at $30,000 a chip and goes north from there. That’s not a business expense; it’s a ransom. When the Fed keeps rates at a twenty-year high, the "cheap money" that fueled the last decade of tech growth evaporates. You can’t just "disrupt" your way out of a 5.5% interest rate when your burn rate looks like a forest fire.

The minutes suggest some officials think AI is a deflationary miracle. The logic is simple: if robots do the work, costs go down. Inflation dies. We all get to retire to a digital utopia. But there’s a darker counter-argument gaining ground in the halls of the Eccles Building. If AI just leads to massive corporate spending on infrastructure without a corresponding jump in actual, sellable output, it’s just more heat in an already warm economy. It’s a productivity mirage.

The rift is getting personal. Some governors are worried about the "wealth effect" of the tech sector’s vertical climb. While the rest of the country is struggling with 7% mortgage rates and the indignity of a $14 burrito, the AI-adjacent elite are seeing their portfolios balloon. That creates a weird, lopsided economy where the Fed’s traditional tools don’t work. You can’t cool down a housing market when the buyers are flush with cash from a pre-IPO secondary sale.

It’s a classic squeeze. If the Fed cuts rates to save the labor market, they risk pouring gasoline on the AI bubble, potentially sending Nvidia’s market cap into the stratosphere while the price of gas stays stubbornly high. If they hold steady, they might break the back of the small businesses that don't have "generative" in their mission statement.

The central bankers are essentially trying to fly a plane while Silicon Valley is busy rebuilding the engines in mid-air. One group of officials thinks the new engines will make the plane go faster. The other group is terrified the whole thing is going to catch fire and plummet into the sea. Neither side has the data to prove they’re right. They’re guessing. Expensive guesses.

Don't expect a consensus anytime soon. The minutes reflect a group of people who are realize they’re losing their grip on the narrative. They aren’t just fighting about when to cut; they’re fighting about whether the old rules even apply in a world where a chatbot can allegedly do the work of a thousand entry-level analysts.

If the Fed can’t agree on what productivity looks like anymore, how are they supposed to price the cost of money?

Maybe we should just ask the AI. It probably has a better idea of how much it’s going to cost us than Jerome Powell does. Then again, the AI doesn't have to pay rent.

The Fed is left staring at the spreadsheets, hoping the numbers start making sense before the next meeting. They won't. The rift isn't a temporary glitch in the system. It’s the new system.

It’s going to be a long, expensive summer for everyone who isn't selling GPUs.

Are we looking at a soft landing, or just a very high-speed collision with reality?