Fed weighs AI risks and growth impact as U.S. scrutiny of buildout rises

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Fed weighs AI risks and impact

Highlights

Fed officials in San Francisco are assessing whether AI investment will drive inflation higher short-term or reduce it via productivity gains long-term.
Policymakers, including Lisa Cook and Michael Barr, caution AI could cause temporary or sustained U.S. job losses, with risks depending on adoption speed and accessibility.
Political backlash—highlighted by San Francisco Bay area opposition to new data centers—complicates AI investment, though current AI spending supports U.S. growth and market strength.

San Francisco forum examines inflation and labor effects

As reported by Reuters, Warsh is using a public forum in San Francisco on Monday to gather views on the economic and labor-market effects of AI, the only scheduled public event among five task forces he set up earlier this year to review major issues for the central bank.

The discussion comes as Fed officials try to judge whether AI ultimately lowers inflation through stronger productivity or pushes prices higher in the near term because of heavy investment in data centers, computing power and related infrastructure. The San Francisco Fed's agenda says the three-hour event includes three panels and is designed to provide input from a wide range of stakeholders on technology's implications for the economy and the labor market.

Warsh has described AI as a hinge point in history, but his view has become more nuanced since taking office in May. The change reflects uncertainty over when productivity gains may arrive, how inflationary the investment cycle may prove, and whether AI brings broad employment gains or a period of deeper labor-market disruption.

Fed Governor Lisa Cook says AI may lead to at least a temporary rise in unemployment and possibly a higher underlying level of joblessness. Fed Governor Michael Barr similarly says the U.S. should prepare for serious short-term disruption in the job market, depending on how quickly AI spreads and whether it remains accessible to businesses of different sizes.

Political backlash complicates AI investment outlook

The forum takes place as political resistance to the AI boom grows, especially around land use, inequality and the social effects of the technology. Last week's midterm elections intensified that backlash, while local officials in the San Francisco Bay area are pushing to curb new data center construction.

Oakland Mayor Barbara Lee recently backed a movement to ban local data center construction, arguing AI must be used responsibly and not deepen bias, discrimination or displacement. Broader concerns now extend beyond local development fights to mental health, financial-market stress tied to complex AI funding structures, and national security risks after revelations involving a senior tech executive and an alleged Chinese spy.

Even so, AI spending is still supporting U.S. growth, stock-market gains and consumer and business demand. Richmond Fed President Tom Barkin says the scale of investment is historic, but warns that if the expected returns do not materialize and companies pull back, the economic consequences could be significant.

Warsh's task force includes figures from the technology sector such as Marc Andreessen, Stanford economist Chad Jones and Microsoft's Xbox chief Asha Sharma. But any recommendations from the group do not directly set monetary policy, which remains in the hands of Fed officials weighing how AI changes the outlook for inflation, employment and financial conditions.

We recently reported on AI data center financing risks, as rising costs, delays and power constraints test the U.S. buildout.

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