The Federal Reserve is currently examining the possible effects of generative artificial intelligence (AI) on productivity, inflation, and the labor market. Fed Chair Jerome Powell made this announcement during a panel discussion at the European Central Bank’s Forum on Central Banking in Portugal. He mentioned that significant investments in AI suggest that something major is coming up.
Powell stated that it is too early to predict whether AI technology will result in job elimination, augmentation, or creation. He noted that central banks may not have much influence over these outcomes but are actively collaborating with experts to understand the potential impact on productivity, inflation, growth, and displacement.
The Federal Reserve is devoting a considerable amount of time and resources to researching AI’s potential effects. Although they are not currently utilizing generative AI, they are closely examining other forms of AI and may consider using them in the future. In January 2021, the International Monetary Fund (IMF) reported that AI could have a significant impact on employment in advanced economies, with 60% of jobs potentially being affected by AI technology. According to IMF estimates, half of these jobs may benefit from AI integration while the other half may see human tasks being replaced by AI applications. This could lead to lower labor demand, reduced wages, and decreased hiring. Citi also published a report in June 2021 stating that over half of all finance jobs could be impacted by AI technology with other industries such as insurance energy and capital markets also having a high potential for automation.
Overall, the rise of AI technology has the potential to significantly transform various industries and the labor market raising questions about productivity inflation growth displacement The Federal Reserve and other financial institutions are closely monitoring these developments to better understand and prepare for the implications of AI technology.
