https://www.citadelsecurities.com/news-and-insights/infl-ai-tion-risks/?utm_source=li&utm_medium=social&utm_campaign=usmacro

The report "Infl-AI-tion Risks" by Frank Flight, a Macro Strategist at Citadel Securities, argues that while markets are currently fixated on the deflationary potential of AI (labor displacement), the actual near-term risk is higher-than-expected inflation.

Citadel offers "conceptual pushback" to the popular narrative that AI will quickly lower costs, highlighting several factors that are instead driving prices upward:

---

1. The "Disintermediation" Narrative vs. Reality

• The Market View: Many investors believe "recursive" (self-improving) AI will rapidly replace human labor, leading to lower wages and prices.
• Citadel’s View: They argue this narrative has swung too far. Historically, major tech shifts expand the economic pie rather than just cutting labor. Current data shows record-high employment and firms like IBM actually increasing entry-level hiring due to AI.
• Physical Bottlenecks: AI performance scales "sub-linearly," meaning it requires exponentially more compute and power to improve. These hard infrastructure constraints act as physical bottlenecks that prevent AI from "self-scaling" autonomously.