AI threatens jobs, and the Federal Reserve has no solution? Board member Cook warns: Traditional rate cuts may struggle to combat the unemployment wave

Federal Reserve Board Governor Lisa Cook recently stated that this central bank may not be able to effectively address the rising unemployment caused by the widespread adoption of artificial intelligence (AI) technology.

On Tuesday (February 24), her speech posted on the Federal Reserve’s official website read, “If AI continues to boost productivity, economic growth may remain strong even if increased labor market mobility leads to higher unemployment.”

“During such a productivity boom, rising unemployment does not necessarily mean the economy has more idle capacity. However, because of this, we often focus on demand-side monetary policy, which may not be able to alleviate AI-driven unemployment without pushing up inflation pressures.”

Source: Federal Reserve Official Website

The speech noted that the emergence of AI is likely to be the latest example of what economist Joseph Schumpeter called “creative destruction” — “We seem to be entering the most significant job restructuring in generations. This transformation could create new opportunities but may also come with some costs.”

Economist Joseph Schumpeter coined the term “creative destruction” — each major innovation causes significant shocks to old technologies and production systems.

Cook stated that while it is still too early to determine whether the AI-driven transformation will be comprehensive, signs indicate that the shift has already begun: demand for labor in certain professions has declined, especially among programmers, as AI has made significant progress in this field.

She also mentioned that the unemployment rate among recent college graduates has risen in recent years, and some employers are using AI to perform tasks previously done by entry-level employees. “We are currently unclear about the specific evolution and strength of the labor market transformation.”

Earlier, some Federal Reserve officials also inevitably mentioned potential changes brought by AI in their speeches. They pointed out that the productivity boom driven by AI could push up the so-called “neutral interest rate.”

However, Cook also noted some factors that could lower the neutral rate. She acknowledged that “with strong demand driven by investment, the current neutral rate may be higher than pre-pandemic levels.”

“But as AI’s productivity dividends are more fully realized, or if labor market shifts lead to increased income inequality — with the wealthy gaining a larger share of income — all else being equal, this could actually lower the neutral interest rate.”

At the January policy meeting, the Federal Reserve kept the benchmark interest rate unchanged after three consecutive rate cuts, citing signs of stabilization in the labor market. According to futures market pricing, investors currently expect at least until mid-year before another rate cut.

Cook did not comment on the short-term monetary policy outlook in her speech, but she mentioned that the latest employment data released after the January meeting shows that labor market conditions are stabilizing.

(Article source: Caixin Global)