Comments from Fed Governor Michael Barr in a speech:
Prudent for Fed to take time, look at data, before changing policy again.
Wants to see more evidence inflation ebbing to 2% target.
Still sees ‘significant risk’ inflation will stay over 2%.
Reasonable to think price pressures will further cool.
Job market in balance but vulnerable to shocks.
Recent data points to stabilizing job market.
In long run AI should boost productivity and living standards.
AI boom unlikely to lead to lower Fed interest rates.
Should be prepared for AI to disrupt labor markets.
Little evidence so far AI is driving up unemployment.
Outlook suggests Fed will hold rates steady for some time.
I'm more interested in the comments on AI than monetary policy as it's revealing about how the Fed is thinking about it. Most people see it as dovish but he's saying the opposite here as he argues it's unlikely to lower rates.
AI may become an "invention in the method of invention" for R&D.
Adoption of generative AI in the workplace has been as fast as the PC in the 1980s.
Speed of AI adoption allows less time for workers and businesses to adapt.
Early career workers in AI-exposed fields face higher employment risks.
Higher productivity and capital demand from AI may push up the long-run neutral interest rate
On the Dual Nature of the AI Transition
"While AI’s long-run effects are likely to be profoundly positive for productivity and living standards, the speed of adoption may allow less time for the economy to adapt, deeply disrupting labor markets and harming some workers in the short term."
On the Implications for Interest Rates
"The AI boom is unlikely to be a reason for lowering policy rates; instead, the resulting surge in capital demand and productivity could put upward pressure on the long-run equilibrium interest rate."
