Kevin Warsh claims that advancements in artificial intelligence could lead to increased productivity and lower interest rates, a perspective that is contested by some economists.
Kevin Warsh, nominated by President Donald Trump to lead the Federal Reserve, has stated that developments in artificial intelligence (AI) could significantly boost productivity, paving the way for a reduction in interest rates. He argues that AI could trigger "the largest wave of productivity we've seen in our lifetime" and suggests that this increased productivity would allow the Federal Reserve to lower current interest rates, which stand between 3.5% and 3.75%, without causing inflation to rise.
Despite Warsh's optimistic view, a report from the Financial Times highlights that approximately 60% of 45 economists surveyed by the Center for Financial Markets at the University of Chicago disagree with his assessment. They believe that the effect of AI on prices and interest rates will be limited. This division in expert opinion underlines the uncertainty surrounding the long-term economic impacts of AI and raises important questions about whether policymakers can rely on technological advancements to stabilize or lower interest rates in the future.
As Warsh awaits Senate confirmation to assume leadership of the Federal Reserve after Jerome Powell's term ends in May, the conversation about AI's potential influence on the economy is likely to continue. Policymakers and economists alike will need to carefully consider the broader implications of technological changes, as they pertain not just to productivity, but also to monetary policy and overall economic stability.
