Fed Flags AI Inflation Risk as Nvidia Scandal Rattles Markets and FAA Outage Grounds Flights Nationwide

Federal Reserve Vice Chair Philip Jefferson warned that AI-driven enthusiasm has become a material force in the economy, saying that a significant portion of recent stock price gains stem from AI optimism, that the resulting wealth effect is boosting consumer spending and stoking inflationary pressures, and that AI-fueled productivity gains could raise the neutral interest rate over the long run. The remarks landed as the latest Fed survey showed AI has rocketed to the top of financial-system risk concerns.

Markets were already under pressure from the deepening Nvidia crisis. Jensen Huang stepped down as CEO after revelations that he had concealed an affair with Alice Huang, the former head of Singapore-based Megaspeed, from Nvidia's own general counsel for more than a year. U.S. intelligence agencies believe Alice Huang was a Chinese spy, and a Bloomberg report revealed that a firm she founded procured banned Nvidia H100 and H200 chips that ended up installed in a Shanghai data center through Singapore entities. The WSJ described Huang as having been ensnared by what it called the world's biggest intelligence-gathering operation, and noted that he had grown from a Washington outsider into a trusted Trump confidant who shaped U.S. AI strategy and brokered chip deals globally. Nvidia's board is now reported to be approaching Arm CEO Rene Haas as a potential successor.

The scandal hit stocks hard. Nvidia shares fell roughly 2% on Friday and recorded their worst week since April of last year. The Nasdaq 100 dropped 1.22% and the S&P 500 fell 0.40%, while the Philadelphia semiconductor index slid 3.4%, dragging AMD and Broadcom sharply lower. Broadcom had separately reported semiconductor revenue growth of 68% last quarter, and analysts said any Nvidia leadership disruption could accelerate customer diversification toward custom-chip makers.

A nationwide FAA ground stop added to the day's disruption. A software update crashed the air traffic control communications network operated by L3Harris, forcing a halt to all U.S. departures for more than four hours before airspace was reopened. The FBI opened an investigation but said it found no indication of a cyberattack or malicious activity, and DHS Secretary Mullin said a hack or rogue AI did not appear to be the cause. Air Space Intelligence, vendor of the FAA's SMART system, and Microsoft both denied involvement. Separately, Microsoft disclosed that its November service outage had knocked out cybersecurity and compliance tools including Defender for Office 365, Defender XDR, and Microsoft Purview, while also disrupting data loss prevention, audit, and eDiscovery workflows, though the company said it found no evidence of malicious exploitation.

Amid the turbulence, OpenAI launched a ChatGPT Wallet allowing AI agents to make purchases using a user's linked Visa, Mastercard, or Amex card, with Face ID required for every transaction. AMD CEO Lisa Su, also a distant cousin of Jensen Huang, was named Yahoo Finance's 2026 CEO of the Year, recognized for transforming AMD from a 3 billion dollar company into a 1 trillion dollar company and becoming the first woman to lead a trillion-dollar firm. Nvidia reported Q2 FY2027 revenue of 96.2 billion dollars, with the Data Center segment alone generating 89 billion dollars and net profit reaching 59.7 billion dollars, a 62% net margin.