A Federal Reserve governor suggested that the rise of artificial intelligence may soon push the central bank into a tough spot, forcing it to choose between fighting inflation and boosting employment. The official noted that if AI significantly increases productivity, the economy could grow strongly even as changes in the labor market lead to higher unemployment.
“The AI transition I am contemplating could have profound implications for monetary policy,” the official stated. The core of the problem is that the unemployment caused by AI might be structural—a fundamental shift in the kinds of jobs needed—rather than a result of a weak economy. This means that the Fed’s usual tool of adjusting interest rates to stimulate demand may not be effective.
“Our normal demand-side monetary policy may not be able to ameliorate an AI-caused unemployment spell without also increasing inflationary pressure,” the governor explained during an economic conference. “This means that monetary policymakers would face trade-offs between unemployment and inflation.”
This perspective aligns with another recent comment from a senior Fed official, who also believes the AI boom could be inflationary and disruptive to the job market in the short term, suggesting it would not be a reason to lower interest rates.
However, this view is not universal. Another prominent figure in the financial world has argued that AI will bring about a massive wave of productivity that is “structurally disinflationary,” which would actually allow for lower interest rates. This contrast highlights the ongoing debate about the true economic impact of the rapid advancement in artificial intelligence.
