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Federal Reserve Speeches·

Cook, An Update on AI and the Economy

  • Federal Reserve Governor Lisa Cook identified AI as a general-purpose technology comparable to the steam engine, electricity, & the internet.
  • AI-driven investment in chips, computers, & software has surged, contributing to short-term inflationary pressures above the Fed's 2 percent target.
  • Sector-specific price increases may resolve as supply chains adjust, though broad-based demand from data centers & wealth effects poses ongoing risks.
  • Productivity gains from AI could provide modest disinflation in the medium term, but timing remains uncertain & dependent on widespread adoption.
  • The labor market has remained resilient so far, with low unemployment despite early AI adoption in sectors like coding & translation.
  • Risks include potential skill mismatches, displacement of entry-level workers, & a temporary rise in unemployment that monetary policy may struggle to address.
  • Small businesses are adopting AI faster than previous technologies, with nearly half using the tools to boost productivity & compete effectively.
  • Broad-based AI adoption could unleash innovation, allowing small firms to scale & drive net job creation similar to historical tech breakthroughs.
  • Current inflation data shows a 3.8 percent rise over the last 12 months, with core inflation at 3.4 percent, prompting a 25 basis point rate hike in September.
  • The Fed anticipates continued inflation pressure from AI buildouts & geopolitical factors, while the labor market remains well-positioned to handle rate adjustments.
  • Long-term economic outlook remains optimistic that AI-fueled productivity will raise living standards, provided vigilance is maintained regarding safety, bias, & privacy.