Chicago Fed President GOOLSBEE on Thursday reinforced his warning that growing
market expectations of AI-driven productivity gains could lift inf and prompt
the Federal Reserve and other central banks to tighten policy. GOOLSBEE said:
“The stronger the hype about future productivity, the higher rates may need to
be to prevent the economy from overheating. More importantly, facing short-term
supply shocks — whether from oil prices, supply‑chain disruptions or other
factors — will make the problem worse." He said these remarks expand on a view
he first aired publicly earlier this month, when he challenged the notion that
AI will be disinflationary and therefore create scope for central-bank rate cuts
— a view embraced by many Trump administration officials and by the Fed’s new
chair Woshe. GOOLSBEE noted that in the 1990s broader computer adoption
unexpectedly raised US productivity and supported rapid growth without
triggering inf, but warned that if productivity gains are already priced into
market expectations the dynamics change: markets may front‑load spending and
push up prices before real productivity gains materialize.
