Federal Reserve's Powell: Artificial intelligence will boost productivity, but concerns arise over labor market transformation

2026-02-25 01:12:59

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Investing.com - Federal Reserve Board Member Lisa D. Cook said on Monday that artificial intelligence has great potential to boost productivity growth, but she also warned that its application could lead to significant changes in the way we work and potential turbulence in the labor market.

Cook spoke at the 42nd Annual Economic Policy Conference of the American Business Economics Association in Washington. She stated that AI can accelerate idea generation by quickly processing and integrating knowledge, enabling more ordinary people—not just experts—to use analytical tools. Cook pointed out that 60% of jobs today did not exist in 1940, and AI is likely to create new tasks and jobs that are currently unimaginable.

The Fed board member noted that signs of labor market transformation are already evident, including declining demand for certain professions such as programmers. As some employers use AI to perform tasks previously done by entry-level workers, the unemployment rate among recent college graduates has risen in recent years. Cook said that the overall unemployment rate remains low at 4.3%, and recent layoffs have been moderate.

Cook stated that if AI continues to improve productivity, economic growth could remain strong even if labor market turbulence causes unemployment to rise. She pointed out that during periods of productivity booms, rising unemployment may not indicate increased idle capacity, meaning that normal demand-side monetary policy might not be able to alleviate AI-induced unemployment without adding inflationary pressures. Cook said that policymakers will face trade-offs between unemployment and inflation, and that education and labor policies may be better suited to address these challenges.

The Fed board member also noted that despite high interest rates, investments in data centers and chip businesses related to AI are still surging, suggesting that the current neutral interest rate may be higher than pre-pandemic levels. Cook added that this situation could reverse when AI’s productivity gains are more fully realized or when labor market shifts lead to increased income inequality.

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