Federal Reserve Chair Kevin Warsh said artificial intelligence has the potential to increase economic productivity over the medium term, while acknowledging that the transition could create challenges for businesses, workers and monetary policymakers.
Speaking on Friday at an International Monetary Fund forum in Bangkok, Warsh outlined his expectations for the technology’s economic effects and reiterated the central bank’s commitment to controlling inflation.
He also declined to indicate how the Federal Reserve might adjust interest rates at its remaining meetings this year.
AI Spending Initially Contributes to Demand
Warsh said the economic effects of artificial intelligence are likely to develop in stages.
In the near term, investment in AI is contributing to demand as companies expand spending on technology and related infrastructure.
Over the medium term, Warsh expects the technology to increase the economy’s productive capacity, potentially allowing businesses to generate more output.
He characterised AI as one of the most significant technological changes affecting the US and global economies during his lifetime.
However, he cautioned that the transition would not necessarily be straightforward.
The timing of productivity improvements, the implications for employment and the companies that ultimately benefit remain uncertain.
Labour Markets and Inflation Present Policy Challenges
Warsh identified several areas requiring further assessment as AI adoption expands.
These include changes in employment, the competitive structure of industries and the possible implications for financial stability.
The Federal Reserve is also examining whether productivity improvements could affect inflation dynamics over time.
To support this work, the central bank is using external task forces to study the economic consequences of artificial intelligence.
One group focused on productivity and jobs is scheduled to conduct its first field hearing in the San Francisco Bay Area on November 16.
The initiative forms part of the Federal Reserve’s efforts to evaluate the potential effects of technological change on economic conditions.
Warsh Declines to Signal Next Interest Rate Decision
On monetary policy, Warsh reaffirmed the Federal Reserve’s commitment to restoring price stability.
The central bank removed some monetary policy accommodation at its September meeting, but Warsh did not indicate whether further adjustments would follow.
Instead, he said decisions at the remaining meetings this year would depend on developments in economic activity, employment and inflation.
Warsh also discussed persistent inflation as an issue facing central banks internationally.
He said policymakers had demonstrated a commitment to price stability despite differences in economic performance across countries.
Broader Investment Expansion Contributes to Growth
Warsh said the US economy is benefiting from an increase in investment that extends beyond artificial intelligence.
He identified this broader capital spending trend as a factor supporting economic growth.
The Federal Reserve chair also said global economic performance had been more resilient than he expected several months earlier.
His assessment reflected economic conditions despite ongoing geopolitical tensions and conflicts.
Federal Reserve Reviews Economic Assumptions
Warsh said technological developments and structural economic changes require monetary policymakers to review established assumptions.
He emphasised the need to consider new evidence when assessing how AI could affect productivity, employment, inflation and financial stability.
The Federal Reserve’s research initiatives are intended to contribute to that assessment as the technology develops.
Warsh’s comments indicate that he expects AI to provide longer-term economic benefits, while recognising uncertainty about the transition and its implications for monetary policy.
The central bank’s immediate policy focus remains on incoming economic data and its objective of restoring price stability.
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