SynopsisWall Street's record rally faces a new test as ' Trumpflation' concerns grow alongside AI-driven pricing pressures. 3% and rising Treasury yields raise fears that the Federal Reserve could hold interest rates higher for longer or hike rates, threatening high equity valuations.

AgenciesWhy ' Trumpflation' and AI boom pose a threat to US stocksWall Street's record rally is facing a fresh risk from inflation, with US economic policy uncertainty and the artificial intelligence boom adding pressure on prices just as US stocks trade near all-time highs. The main worry among market participants is what investors are calling ' Trumpflation', that is price pressures linked to trade, energy and foreign policy proposals.

The Dow Jones, S&P 500 and Nasdaq Composite have hit record levels this year, helped by strong corporate earnings and investor excitement around artificial intelligence. But inflation concerns have resurfaced, raising fear that the Federal Reserve may have to keep policy tight or even raise rates again.

5% in June, helped by lower crude oil and fuel prices. However, the broader inflation picture remains sticky.

4% in May. 3% in July.

That is still above the Fed's 2% inflation target. Tariffs, geopolitical risks and AI add pressurePart of the inflation pressure is linked to proposed and ongoing tariff policies.

Tariffs can raise costs for companies that import goods and components. Some of these costs are absorbed by businesses, but a part is often passed on to consumers.

The second source of pressure is energy market volatility following Middle East geopolitical tensions. Higher energy costs can raise transport, manufacturing and food costs across the economy.

The third source is artificial intelligence. AI has been the biggest driver of market enthusiasm this year, but it may also be adding to inflation.

In the minutes of the Federal Open Market Committee's June meeting, policymakers said core goods inflation had risen from a year earlier, partly reflecting tariffs and AI-related pricing pressures. This is an uncomfortable mix for markets.

The same AI boom that is lifting technology stocks may also be adding to price pressure through higher demand for chips, servers, power, data centres and related infrastructure. Rate-hike risk returnsThe risk for stocks is not just inflation itself; the bigger risk is the Fed's response.