AI 'most consequential change' to economy: Warsh

Artificial intelligence (AI) is likely to be the most consequential change to the US and global economies in his lifetime, Federal Reserve Chair Kevin Warsh said on Friday, while cautioning that its near-term impact on employment remains uncertain and the transition to a more productive economy could be bumpy.

Speaking with International Monetary Fund (IMF) Managing Director Kristalina Georgieva in a fireside chat in Bangkok, Warsh said AI would reshape the real economy, with its effects likely to be felt on the demand side before the technology delivers a supply-side shock.

AI could make economies and countries that put the technology to good use more productive and generate greater wealth, he said. However, the path towards those gains would not necessarily be smooth, and the impact on employment over the next 12 to 18 months remains unclear.

Global economy: Investment surge and price pressures

Warsh described the current combination of structural growth and an investment surge as one of the most important positive developments in the global economy, arguing that sound macroeconomic policy and strong microeconomic foundations could help sustain the momentum.

“It's probably the most important thing that's happening in the global economy on the upside,” he said, referring to the investment surge.

However, he also pointed to rising prices as a concern shared by central bankers across economies, while noting that the effects differed from country to country.

Warsh said discussions with central bankers during meetings in Bangkok had brought the issue of rising prices into focus.

“To be balanced, as we central bankers have to be, I came out of meetings here yesterday and today, and it's hard to be in a discussion with central bankers and not compare notes and hear the same thing about the surge in prices. It obviously affects each of us differently,” he said.

The remarks put the investment outlook alongside inflation concerns, as policymakers assess how growth, prices and employment are evolving across economies.

Fed policy, inflation and the road ahead for AI

On US monetary policy, Warsh said the Federal Reserve had made its commitment to price stability clear and had removed a dose of monetary accommodation about a month earlier.

“At the Federal Reserve, we made very clear that we will deliver price stability, and we removed a dose of accommodation about a month ago,” he said.

He declined to signal the direction of future interest-rate decisions, saying he did not believe in prejudging policy meetings or announcing in advance what he might do at the remaining meetings of the year.

Warsh also said the effects of AI needed to be assessed seriously but with caution and responsibility, given the uncertainty surrounding the pace and distribution of its economic impact.

“It's going to do several things. First, it's obviously hitting the demand side of the economy before it's going to hit the supply side of the economy,” he said.

While AI could ultimately lift productivity and wealth, Warsh cautioned against assuming that the transition would be straightforward. Its near-term consequences for employment remain uncertain, even as the technology is expected to change how the real economy functions.

He also acknowledged that his assessment of economic risks may be shaped by his experience of the global financial crisis.

“I might be over-scared from global financial crisis,” Warsh said.

He said policymakers would continue to assess developments in output, employment and inflation as the economic effects of the changing environment become clearer.

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