Federal Reserve Governor Cook: AI productivity dividends are difficult to curb inflation, and the Federal Reserve may need to further tighten policies

Zhitong Finance APP reported that Federal Reserve Board member Lisa Cook stated in prepared remarks at an event in Oakland, California, on Monday that the future productivity gains brought by artificial intelligence may not be enough to offset recent price pressures and warned that this trend could push up overall economic inflation. She anticipates that productivity gains in the coming years will have a moderate disinflationary effect, but these effects will not be timely enough to counteract the increasingly expanding inflationary pressures later this year.

Cook said that the Federal Reserve’s decision to raise interest rates earlier this month was necessary to address high inflation and that future policy actions will be guided by economic data. She pointed out that large-scale investment in data centers has already increased competition for shared resources such as energy and construction labor, with electricity and water costs rising by about 5% over the past year. Against the backdrop that companies have spent only a small portion of their $2 trillion committed capital and that the AI-driven stock market rally has stimulated consumer spending, she warned that broader price pressures may gradually emerge.

Cook described AI as “likely to be the most significant technological transformation of our lifetimes,” but she also cautioned that it remains unclear how quickly this technology will boost overall productivity. She said: “Any estimate of how and when this mechanism will take effect faces uncertainty and is worthy of further research and discussion.”

Federal Reserve policymakers unanimously voted this month to raise the benchmark interest rate by 25 basis points, and based on the median forecast, preliminarily expect at least one more rate hike before the end of the year. Federal Reserve Chair Kevin Walsh stated that the move aims to remove “a dose of accommodation” from the economy in order to bring inflation back down to the central bank’s 2% target. A series of recent public statements by officials have also emphasized that sustained economic momentum and a strong labor market provide grounds for further tightening. Financial markets have also increased bets on another rate hike, with federal funds futures indicating about a 70% probability of a rate increase in October.

Additionally, Cook stated that the labor market appears able to withstand higher interest rates, with the unemployment rate trending downward and other indicators suggesting the labor market is “broadly balanced and gradually improving.” She said: “The strength of the labor market is also reflected in broader economic growth data, as economic growth has maintained notable resilience over the past year.”