Federal Reserve Chair Kevin Warsh said artificial intelligence could increase economic productivity over the medium term, although the transition may create uncertainty for employment, inflation and financial markets.
Speaking at an International Monetary Fund forum during the annual meetings in Bangkok on Friday, Warsh said AI was initially contributing to economic demand, while its longer-term effects on productive capacity had yet to fully emerge.
He also reiterated the Federal Reserve’s commitment to price stability following its decision to remove some monetary policy accommodation at its September meeting, without indicating the likely outcome of upcoming interest rate decisions.
AI Investment Could Increase Economic Productivity
Warsh described artificial intelligence as one of the most consequential technological developments affecting the US and global economies during his lifetime.
He expects AI to generate a positive supply-side effect over the medium term, potentially allowing businesses to increase output through improvements in productivity.
However, Warsh distinguished between the technology’s immediate economic impact and its potential longer-term benefits.
He said the current phase of AI development was contributing primarily to demand, reflecting investment and spending associated with the technology.
The eventual impact on productive capacity could take longer to materialise, creating uncertainty about the timing and scale of the economic benefits.
Employment and Financial Stability Remain Policy Considerations
Warsh acknowledged that the transition towards greater AI adoption could involve adjustments across labour markets and industries.
He identified employment, market structure and the distribution of economic benefits among companies as areas where outcomes remain uncertain.
These developments also present challenges for monetary policymakers seeking to assess the implications of technological change.
According to Warsh, the Federal Reserve must consider how AI could affect inflation, productivity and financial stability as businesses and consumers increase their use of the technology.
The central bank is examining these issues through external task forces, including an initiative focused on productivity and employment.
That task force is scheduled to hold its first field hearing in the San Francisco Bay Area on November 16.
Federal Reserve Maintains Price Stability Commitment
Warsh reaffirmed the Federal Reserve’s focus on restoring price stability following its September monetary policy decision.
The central bank removed some monetary policy accommodation at that meeting, although Warsh declined to provide guidance on the direction of future policy changes.
He said policymakers would evaluate incoming economic information before making decisions at the remaining Federal Reserve meetings this year.
The assessment will include developments in economic output, employment and inflation.
Warsh also identified persistent inflation as a challenge shared by central banks internationally.
He noted that monetary authorities had continued to pursue price stability despite differences in national economic conditions.
Investment Activity Supports US Economic Growth
Beyond artificial intelligence, Warsh highlighted a broader increase in investment across the US economy.
He said the expansion in capital spending was contributing to economic activity and providing support for growth.
The investment trend extends beyond AI-related projects, indicating that additional areas of the economy are also experiencing increased spending.
Warsh also observed that global economic conditions had proved more resilient than he had anticipated several months earlier.
This assessment came despite continuing geopolitical tensions and international conflicts.
Fed Examines Structural Economic Changes
Warsh said central bankers would need to reconsider established economic assumptions as artificial intelligence and other structural developments influence economic activity.
He emphasised the importance of evaluating new evidence and remaining open to different approaches when assessing the effects of technological change.
The Federal Reserve’s ongoing work on AI-related productivity and employment is intended to inform its understanding of these developments.
While Warsh expects artificial intelligence to contribute positively to economic supply over the medium term, he acknowledged uncertainty surrounding the transition.
For monetary policy, the Federal Reserve will continue assessing economic output, labour market conditions and inflation while maintaining its stated commitment to price stability.