Artificial intelligence productivity gains may not come in time to offset inflation pressure by the end of the year, warned Federal Reserve Governor Lisa Cook as the central bank examines broadening price pressure and AI's effect.
On Monday in California at Oakland Tech Week, Cook said AI data centers, which involve labor and energy, are also used in other sectors in the economy, resulting in more AI investment, while introducing more price pressure to those areas. Water and electricity sources are up about 5% each, she noted.
"A well-timed productivity boom could counter broadening price pressure, if it were to increase the supply capacity of the economy more than it increases demand," Cook said.
Productivity gains could mean disinflation over the next few years, she said.
"However, I do not expect those effects to arrive in time to offset the broadening inflationary pressure later this year," Cook said. "Moreover, uncertainty surrounds any estimates related to how and when this mechanism may operate, and it warrants further research and discussion."
The Fed voted to raise its interest rate a quarter point to 3.75%-4%, the central bank's first hike since July 2023, to fight inflation and cool down the economy. On Sunday, Preston Caldwell, senior U.S. economist for Morningstar Research Services LLC, said he believes the central bank is trying to offset the demand shock rooted in AI.
"If the latter is true, then AI isn’t likely having a large impact on inflation," Caldwell said.
The timing of "disinflationary payoff" depends on how businesses overall adopt AI tools and change their business practices and how that affects the labor market, Cook said on Monday.
"I am very uncertain as to the breadth and timing of these channels and will adjust my view depending on what I see in the data," Cook said.