Chicago Federal Reserve President Austan Goolsbee has cautioned that the artificial intelligence boom, while promising long-term productivity gains, could create near-term inflationary pressures. Speaking this week, Goolsbee highlighted the risk that increased spending and investment, driven by the anticipation of future AI-led wealth, could outpace actual productivity gains. This scenario could force the Federal Reserve to resume raising interest rates to cool down an overheating economy.
Goolsbee stated that even if AI proves to be as revolutionary as many predict, the Fed must remain vigilant against rising inflation. He described the potential for AI to significantly boost efficiency as "lovely, wonderful" but emphasized the need for caution if prosperity remains in the future while the public spends based on expected wealth gains. He noted that the labor market remains stable, but inflation has become the primary risk.
Goolsbee isn't alone in his concerns. Some economists worry that the massive investments in AI infrastructure, while potentially deflationary in the long run, are currently contributing to inflationary pressures. This is because the money is being spent now, while the productivity benefits are still years away.
Goolsbee acknowledged divisions within the Fed regarding the inflation outlook and the state of the labor market. He supports clarifying the framework for rate decisions when facing stagflationary shocks, signaling growing wariness within the decision-making circle about easing monetary policy too early. He also stated that the U. S.-backed conflict with Iran is increasingly taking on the character of an inflationary shock, raising concerns at the central bank about the durability of price pressures even as employment holds relatively steady.
