Trump’s Fed Pick Aims to Recreate 1990s Economic Boom Using AI, Experts Doubtful

President Trump believes his Federal Reserve nominee Kevin Warsh and artificial intelligence can recreate the economic prosperity of the 1990s internet boom. However, many economists question whether today's economic conditions can support such a dramatic turnaround.

WASHINGTON — President Donald Trump, along with his Treasury secretary and Federal Reserve nominee, are banking on recreating the economic prosperity that defined the late 1990s.

Their strategy centers on artificial intelligence serving the same transformative role that the internet played during the Clinton era. During that period, the American economy experienced remarkable growth as companies became more efficient, joblessness dropped significantly, and price increases remained manageable.

Trump believes his Fed chair nominee, Kevin Warsh, can trigger an even more impressive economic surge by abandoning what the president considers the central bank’s outdated resistance to aggressive interest rate reductions.

Economic experts remain unconvinced.

Today’s economic landscape bears little resemblance to the era when the Spice Girls dominated music charts and “Titanic” broke box office records. The narrative promoted by Trump’s team — suggesting that visionary Fed leader Alan Greenspan sparked the ’90s expansion through low interest rates — presents an oversimplified picture.

“The administration is offering a rather distorted version of what actually happened in the 1990s,” economist Dario Perkins of TS Lombard said in a commentary.

Despite skepticism, the Trump administration remains convinced that history can be repeated. According to the president’s perspective, the only missing element has been a Fed chair possessing Greenspan’s forward-thinking approach.

Trump has consistently criticized current Fed leader Jerome Powell, whose chairmanship expires in May, for his unwillingness to cut rates more dramatically while inflation remains above the central bank’s 2% goal. Treasury Secretary Scott Bessent posted on social media in January that the president wanted to replace Powell with someone having “an open, Greenspan-like mind.”

“Our nation can see productivity boom like we did in the ’90s when we are not encumbered by a Federal Reserve which throws the brakes on,” Bessent said.

Trump announced his selection of Warsh on January 30.

Through various speeches and publications, Warsh has contended that artificial intelligence-powered productivity enhancements could support lower interest rates.

These positions match Trump’s preference for Fed rate reductions but represent a departure from Warsh’s previous stance as someone who typically favored fighting inflation. Following the 2007-2009 Great Recession, Warsh — serving as a Fed governor at the time — opposed some central bank initiatives designed to assist the struggling economy through rate cuts, even with unemployment exceeding 9%. Warsh incorrectly predicted then that inflation would soon surge.

The current debate revolves around productivity increases and whether AI will amplify them substantially.

Economists view productivity improvements as nearly miraculous. When businesses implement new equipment or technology, their employees can work more effectively and generate greater output per hour. This enables companies to increase profits and worker compensation without raising prices. Simply put: Rising productivity can fuel economic expansion without triggering inflation.

During the mid-1990s, Greenspan faced unusual economic conditions: Employee wages were increasing, yet inflation remained stable.

Significant productivity gains could have provided an explanation, but government statistics showed no evidence of such improvements. Other Fed officials worried that rising wages and controlled inflation couldn’t coexist and that price increases were inevitable. They favored raising interest rates.

However, Greenspan suspected the official productivity measurements were incomplete. The data didn’t align with remarkable efficiency improvement stories the Fed was hearing from companies investing in computers and adopting internet technology.

He directed his staff to examine decades of productivity data. The official statistics they compiled presented an unlikely scenario: Service sector businesses — from retail stores to law firms — had allegedly experienced declining productivity over time, despite fierce competition and substantial technology investments.

Greenspan rejected this conclusion. He convinced his Fed colleagues that government figures were incorrect and underestimating productivity. They decided in September 1996 to postpone rate increases.

The economy soared.

Eventually, productivity improvements appeared in official data. American economic growth exceeded 4% annually from 1997 through 2000, an achievement repeated only once in the following 25 years. Unemployment fell to 3.8% in April 2000, the lowest level in three decades. Inflation remained controlled, staying below 2% — later the Fed’s official target — for 17 consecutive months during 1997-1999.

American productivity appeared robust during the second and third quarters of 2025, with some economists crediting early AI adoption for these improvements; they anticipate larger gains and stronger economic growth ahead.

Others express uncertainty.

Joe Brusuelas, chief economist at consulting firm RSM, argued that 2025 productivity improvements “are not because of artificial intelligence” but reflect automation investments companies made when facing worker shortages during and after the COVID-19 pandemic. “Those investments are starting to pay off,” Brusuelas wrote.

Economist Martin Baily, senior fellow emeritus at the Brookings Institution, believes AI will require time to significantly impact business operations and national productivity.

“Companies don’t change that fast,” said Baily, chair of President Bill Clinton’s Council of Economic Advisers. “It’s expensive to change. It’s risky to change. The managers don’t necessarily understand the new technology that well. So they have to learn how to use it. They have to train their staff. All that stuff takes a long time.”

While productivity booms can increase the economy’s growth potential without triggering higher prices, they might not justify lower interest rates, Federal Reserve Gov. Michael Barr explained in a recent speech.

Companies will need to borrow money for AI investments, creating upward pressure on interest rates. Similarly, American workers and families would likely save less and borrow more expecting higher wages from increased productivity, further pressuring rates upward.

Barr concluded: “The AI boom is unlikely to be a reason for lowering policy rates.”

Even Greenspan’s Fed ultimately reached similar conclusions, changing direction and beginning to raise its benchmark rate in mid-1999, increasing it from 4.75% to 6.5% in under a year. (The current rate Trump criticizes stands around 3.6%.)

“Warsh and Bessent talk only about the dovish 1995/96 version of Greenspan; they overlook the hawkish 1999/2000 variant,” Perkins wrote.

Many of Warsh’s potential future Fed colleagues on the interest-rate setting committee view the late 1990s experience differently, potentially creating conflicts at the central bank if the Senate confirms Warsh as chair.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said earlier this week that “the analogy to the late 90s is a little harder for me to understand.” Greenspan’s insight was that productivity gains meant the Fed could delay raising rates, not that it should reduce them, Goolsbee observed.

“It wasn’t, ‘Should we cut rates because productivity growth is higher?'” he said.

The economic environment awaiting Warsh is also considerably less favorable than what Greenspan encountered.

Greenspan avoided rate increases when the typically free-spending U.S. government was running unusual budget surpluses and didn’t require extensive borrowing. Currently, following multiple spending increases and tax reductions, deficits accumulate annually, and the Congressional Budget Office projects federal debt will reach a historic high of 120% of America’s GDP by 2035.

Productivity wasn’t the sole factor controlling inflation during the 1990s. Nations were reducing tariffs and eliminating trade restrictions. Immigration was increasing.

Now, largely due to Trump’s own policies, particularly his comprehensive import taxes and immigration restrictions, circumstances have changed dramatically. “Trade barriers are going up,” Perkins wrote. “Globalization has given way to de-globalization.”

“That benign era is clearly behind us,” said Michael Pearce, chief U.S. economist at Oxford Economics.