Fed Considers AI Impact in Rate Decisions as Productivity Scenarios Emerge
The Federal Reserve has begun factoring artificial intelligence into its interest rate calculus, signaling a tectonic shift in monetary policy. Chair Jerome Powell acknowledged the uncertainty during December remarks, drawing parallels to past technological disruptions that ultimately boosted employment and wages.
New research suggests generative AI could reshape labor dynamics dramatically. Economists project a worst-case scenario where 23% of jobs vanish—but surviving workers become 3-4x more productive. Washington University's Ping Wang notes annual output per worker could climb 7% this decade, though outcomes remain speculative.
The Fed now faces dual imperatives: monitoring AI's deflationary potential from productivity surges while assessing labor market shocks. As algorithms learn recursively, their economic impact may compound unpredictably—forcing policymakers to navigate uncharted territory.
