AI Reshaping the Labor Market
Fed Governor Cook noted that AI technology is triggering a generational shift in the US labor market. This transformation could lead to job displacement outpacing job creation, potentially increasing unemployment rates.
Cook emphasized that while AI can boost productivity in the long run, the short-term structural adjustments pose challenges for monetary policy. Traditional tools like rate cuts might struggle to address rising unemployment driven by structural factors.
Neutral Rates Could Rise
- AI investment boom may push up neutral rates in the short term
- If other factors remain constant, this could necessitate tighter monetary policy
- Widening income inequality might depress neutral rates over the long term
Cook highlighted that AI presents multifaceted challenges for monetary policy. Beyond short-term rate changes, if the benefits of technological advancement concentrate among wealthier groups, it could suppress overall consumer demand, potentially creating downward pressure on neutral interest rates.
Considerations for Policymakers
Facing economic structural changes driven by AI, the Fed must balance inflation control with maintaining labor market stability. Cook stressed that policymakers need to closely monitor labor market dynamics while considering broader structural economic adjustments.