Federal Reserve Official: AI’s Economic Impact Still Unclear for Interest Rates

A Federal Reserve official says the central bank needs to thoroughly examine whether artificial intelligence is boosting economic productivity without causing inflation. The assessment will help determine future interest rate decisions as AI investment continues to grow across industries.

Federal Reserve officials must conduct thorough research to determine if artificial intelligence is enhancing economic productivity and allowing for stronger growth without sparking inflation that would force tighter monetary policies, according to San Francisco Federal Reserve President Mary Daly.

Speaking Tuesday at a San Jose State University event organized by the Silicon Valley Leadership Group, Daly addressed the ongoing debate about AI’s economic effects. The Trump administration claims AI is already delivering economic benefits, while some economists believe continued AI investment will drive productivity gains similar to the computer revolution of the 1990s.

However, current research tells a different story. “Most macro-studies of productivity growth find limited evidence of a significant AI effect,” Daly stated in her prepared remarks. She suggested this could be because it’s premature to measure results from corporate AI investments in specific industry sectors.

Alternatively, she noted, “it could also be that we are simply not there yet,” explaining that widespread economic transformations typically require extended timeframes to materialize.

Daly drew parallels to the 1990s, when Federal Reserve Chairman Alan Greenspan recognized that productivity statistics failed to capture the economic benefits of computer and software investments occurring throughout the economy. Greenspan chose to maintain steady interest rates rather than increase them to prevent inflation, a decision that proved correct.

To determine whether AI presents a similar scenario, Daly emphasized that the Fed must examine data beyond national statistics, engage directly with business leaders, and evaluate economic trends carefully.

“The willingness to confront what we know and what we don’t is essential to making appropriate and durable policy that serves all Americans,” she explained.

Daly refrained from discussing immediate monetary policy plans during her Tuesday speech. Previously, she endorsed the Fed’s January decision to maintain interest rates between 3.50% and 3.75%, though she acknowledged arguments for rate reductions to support a job market where workers face limited opportunities and wages eroded by inflation.