IMF warns AI growth slowdown could complicate central bank inflation response

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IMF warns AI growth, inflation

Highlights

IMF's Georgieva warns AI investment boom and elevated tech stock valuations are increasing global market volatility and complicating central bank inflation policy.
A sharp selloff in technology stocks, fueled by fears of tighter U.S. regulation after Democrats' midterm win, spreads to broader markets and drives investors to bonds.
IMF estimates a steep AI investment drop could cut global GDP by 1.1% by 2028 and U.S. output by 1.8%, raising concerns about financial stability.

AI volatility adds to policy risks

As reported by Reuters, Georgieva says concern over reliance on the AI investment boom and elevated valuations is affecting markets globally. She says prices are moving sharply up and down, and that volatility is likely to persist, making the task of central banks harder as risks to price stability grow.

A sharp selloff in technology stocks on Thursday spreads through broader markets as investors react to fears that the Democrats' U.S. midterm election victory will bring tighter scrutiny of AI and slower data center expansion. The move pushes investors toward bonds and adds pressure to an AI trade already weakened by doubts over returns on heavy infrastructure spending, with margin calls and retail and hedge fund nerves adding to the turmoil.

Georgieva says the AI investment boom is lifting growth in some countries and helping offset a negative oil supply shock caused by the war in the Middle East. At the same time, she says it is contributing to inflationary pressure and raising financial stability concerns.

IMF flags broader market and growth implications

The IMF warned last month that an end to the AI investment boom could pose significant risks to growth and financial stability, alongside the possibility of a prolonged war in the Middle East. At that time, it said a steep drop in AI investment could trigger a sharp fall in asset prices and cut global GDP by 1.1% by 2028, including a 1.8% decline in U.S. output.

While Georgieva does not repeat that downside forecast on Friday, she acknowledges the latest market turbulence. She says that if the AI-driven growth impulse slows, central banks would need to factor that into decisions on the steps needed to fight persistent inflation.

Democrats are planning a broad push for new legislation targeting artificial intelligence systems and data center development when they take control of the U.S. Congress in January, Reuters reports, citing congressional aides and advocates. That would mark a significant shift from the Republican-led Congress, where lawmakers mostly back AI development and decline to pass restrictive legislation.

Our earlier article on the AI-linked tech selloff described a broad slide in shares tied to artificial intelligence infrastructure, from chipmakers to data-center equipment providers, as investors reassessed stretched valuations and the durability of future AI revenues. It also noted that oil at around $110 a barrel added to inflation worries, potentially keeping Fed policy tighter for longer and amplifying market volatility beyond the tech sector.

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