(Yahoo! Finance) - Federal Reserve governor Lisa Cook suggested Tuesday that artificial intelligence could push the central bank to have to make hard choices between keeping interest rates elevated to fend off inflationary pressures and lowering rates to address lower employment.
“If AI continues to raise productivity, economic growth could remain strong, even as churn in the labor market leads to an increase in unemployment,” Cook said. “The AI transition I am contemplating could have profound implications for monetary policy.”
Rate cuts, Cook said, may not be able to solve for an increase in unemployment due to AI since it’s structural and not rooted in economic weakness.
“Our normal demand-side monetary policy may not be able to ameliorate an AI-caused unemployment spell without also increasing inflationary pressure,” Cook said at the National Association for Business Economics. “This means that monetary policymakers would face trade-offs between unemployment and inflation.”
Fed Governor Michael Barr said earlier this month that he also thinks AI could be inflationary, while possibly disrupting the job market in the short term.
"I expect that the AI boom is unlikely to be a reason for lowering policy rates," Barr said.
The comments stand in contrast to what Fed Chair nominee Kevin Warsh has said about AI, namely that the technology will usher in "the most productivity-enhancing wave of our lifetimes" and be "structurally disinflationary," allowing for lower interest rates.
By Jennifer Schonberger - Senior Reporter
