Fed flags bumpy AI adoption path for economies and labor market
Speaking during the IMF-World Bank Annual Meetings in Bangkok, Federal Reserve Chairman Kevin Warsh says artificial intelligence can make economies more productive and wealthier when it is deployed effectively. He also warns that the path to those gains will be very bumpy and says the technology's near-term effect on jobs remains unclear.
Highlights
- Fed Governor Warsh states that AI could be highly consequential for global economies over the next decade but foresees a bumpy adjustment period.
- Warsh confirms global economic trends have aligned with the Fed's forecasts since September's rate hike to 3.75%-4% but withholds future policy guidance.
- Traders estimate a 72.3% probability of unchanged rates at the October 27-28 Fed meeting, with most anticipating a 25 basis point increase in December.
AI outlook and policy backdrop
As reported by CNBC, Warsh outlines a cautiously optimistic view of AI at a fireside chat with International Monetary Fund Managing Director Kristalina Georgieva on Friday, saying the technology is likely to prove hugely consequential over the next decade if economies use it well.He says policymakers and businesses should approach that opportunity with seriousness, even as he maintains that the long-run gains in productivity and wealth are substantial. Warsh adds that while he is optimistic about the eventual economic benefits, the transition is unlikely to be smooth.
Rate setting and market expectations
Warsh also says the global economy has broadly conformed to the Federal Reserve's expectations since its September rate increase, but declines to signal how he will vote at the central bank's Oct. 27-28 meeting.The Fed raised rates to a range of 3.75% to 4% last month, marking its first increase since 2023. A communications blackout period starts later Friday ahead of the meeting, while traders currently see a 72.3% chance that the Fed leaves rates unchanged, according to CME Fed Watch; most still expect a 25 basis point hike in December.
In our earlier coverage of the debate over Fed communication ahead of the next rate decision, we explained how Chair Kevin Warsh’s push for a quieter central bank met resistance from other officials who argue that clear messaging helps policy effectiveness and credibility. The article noted that a stream of public remarks helped cool expectations for further hikes after September’s increase, even as the latest inflation data kept the October decision highly uncertain.
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