Daly Says AI’s Economic Effects Matter to Fed Policy Analysis

Federal Reserve Bank of San Francisco President Mary C. Daly said Friday that artificial intelligence is relevant to the Fed’s near- and medium-term policy analysis because it can affect productivity, growth and the U.S. labor market.

Daly made the remarks at the San Francisco Fed’s “AI and the Economy” conference. She said policymakers need to understand AI’s effects as they pursue price stability and full employment. Her remarks did not identify a rate decision or preferred rate path, or measure AI’s overall effect on inflation.

The timing of any productivity gains matters. In June, Daly contrasted a possible five-to-10-year horizon for AI-related productivity effects with the roughly 12-month period she said policymakers consider when making decisions. “When we’re thinking about policy decisions, we have to think about today,” Daly said.

The technology could affect prices through different channels and on different timelines. Daly said any downward pressure on prices would depend on AI producing productivity gains. She also said Oct. 6 that rising demand for chips used in AI could add to inflation and make supply shocks more persistent, before productivity benefits become clear.

In February, Daly wrote that most macro studies of productivity growth showed limited evidence of a significant AI effect at that point. She said policymakers should examine disaggregated data and speak with businesses to look for early signs of change. Daly also compared the challenge with the technology boom of the 1990s, saying early productivity shifts may be easier to detect in firm-level data and business reports than in national aggregates.

Fed Gov. Michael S. Barr has said AI investment is adding near-term price pressure while potential productivity gains remain a longer-term possibility, a concern discussed in Barr’s comments on AI investment.