Federal Reserve's Powell: AI triggers a major shift, potentially leading to a rise in neutral interest rates in the short term

CoinWorld reports that Federal Reserve Board member Cook stated that artificial intelligence has triggered a generational shift in the U.S. labor market and may lead to rising unemployment rates, while the Fed may be unable to respond through interest rate cuts. Although AI will bring new opportunities, in the early stages, jobs may be replaced before new ones are created. Therefore, as the economy transforms, unemployment could increase and labor force participation may decline. In this scenario, even if productivity improves, if the potential unemployment rate is pushed higher by structural factors, any measures taken by the Fed could risk triggering inflation. She also pointed out that other “profound” challenges facing monetary policy include: the AI investment boom may temporarily push up neutral interest rates. Under the same conditions, this could mean tightening monetary policy. However, if the emerging AI economy leads to increased income inequality or if the benefits of technological progress are concentrated among the wealthier groups, then over time, the neutral interest rate could decline.