Trump’s Economic Plans Face New Questions as Fed Chair Warsh Warns of AI’s Global Impact

So we talk about the, you're right to say, we look out of the window, what we see is an economy that in some places is booming. It is being dragged upward, mostly by enthusiasm about AI, but then you go into other places and other factors, especially the impact of war, it's dragging economies down. One thing that is happening everywhere, whether your economy is going up or it's going down is the stubborn inflation price pressures that are coming from everywhere and one of the sources of course is the energy shock in the in the Middle East and the energy shock from war but one of the sources is this investment enthusiasm about AI so my question is from a monetary policy perspective how should we think about the impact of AI in short term in the long term is there anything that we are paying too little attention it should be paying more attention today so it's a great question a couple things first Chris Lee you pronounce it AI in the US We now pronounce it S-I, just so you know. So it's probably... Can I say potato, potato? That's right. It was just a... I don't know how that's going to translate for the countries around the world with teams of folks. I'd say the advent of this new technology is probably the most consequential change to the U.S. and the global economy in my lifetime to this point. So I take it seriously, but as a central banker, also soberly, responsibly, I'd say it's going to do several things. First, it's obviously hitting the demand side of the economy before it's going to hit the supply side of the economy. So if you're a central banker and you're in the business of trying to ensure stable prices and full employment, you've got to recognize this as a shock. But it's a positive supply shock in the medium term. I do fundamentally believe that. But on the path to that positive supply shock, we're seeing increases in aggregate demand. That just is what it is. But I think of this shock differently than those other shocks you talked about, shocks of war and military conflict and the rest. This one, there really is, I think, a huge benefit to the global economy, to the U.S. economy over the horizon. So that's one comment. Second, it's a big deal for central banks because we're in the business of trying to, in some ways, distill noisy data all over the world. We get some of that from official statistics in the U.S., from the Bureau of Labor Statistics, the Bureau of Economic Affairs. We torture data with old-fashioned models to try to find out what's underlying inflation trends. Not so long from now, it won't be torture. We will have access at the fingertips of central banks to all the information in the world. And we'll be able to use new analytical tools to distill that data. So when we get new information, we're going to have a lot more confidence in what it tells us as we're looking outside the window and saying, is that real? Or is that lag, the noisy data subject to mismeasurement? So I think it's going to fundamentally change the conduct of monetary policy as a second point. Third, it's going to change the real economy. We don't know in the next 12 or 18 months its effect on employment. But if you believe like I believe, which is it will make economies and countries that put it to good use more productive, that it's going to make it so that we will have more wealth, then that has to be a very good thing. But the path from where we are to there is likely to be a very bumpy one. bumpy in our understanding of the technology. Bumpy because we really don't know what the market structure is going to be of these new technologies. Who's going to get to make the money? What are the consequences for those that bet they were going to make money, but the market structure doesn't allow it? So I want you to hear from me optimism, but optimism leavened by the seriousness of purpose to the day jobs that you and I have. And I think it's an exciting development and it's an innovation that I think a decade from now they'll look back on and they'll say this was hugely consequential. So our job as policymakers is to take it with that same kind of focus. I'll just say one more thing. On big, hard questions that don't matter much to the current policy conjuncture, my view is we at the central bank need to invest in the next policy conjuncture. So among the external task forces that I initiated about four or five months ago is one on productivity and jobs. We're going to have our first field hearing of a task force on November 16th in the Bay Area where we're going to wrestle with these issues. I'm pretty sure I've got the right questions. I'm not sure I have the right answers. And so we've got a group of outside experts both on the task force and people in the broader community to help us engage on that. And hopefully there'll be fruits of that, not just for us in the U.S., But these efforts that we're doing and investigating at the Fed, these are global public goods. And might the IMF, might other G20 central banks learn, decide to adopt some of these things in their own? That's the hope and expectation. The better they do, the better we do. Very much look forward to that. So to avoid the linguistic controversy, let's call it the NHI, the non-human intellect. So if we look at that development that is incredibly rapid, we do have to think about the impact on inflation, short and long term. We do have to think about impact on financial stability. And as you said, there is the excitement of what it may mean for productivity. On this triangle of inflation, possibly disinflation in the future, the impact on financial stability risk and the upside on productivity, which one you get your task forces to concentrate most on? What is, in your view, the one issue that dominates monetary policymakers? So, first, here's my working proposition about task forces. Because I've been on task forces like you have before we were in these jobs. You want to ask them the questions. And to be full disclosure, I check in with each of my five task forces periodically. But you also want to let them be themselves. The idea of the task force on productivity and jobs, on data collection, on inflation, is to let them produce new intellectual capital and to drop that on the Federal Open Market Committee to share their views with the broader audience and see whether that catalyzes new thinking. Otherwise, you and I and our peers in central banking, we could just push the same ideas around. The idea is to really let them do it. There are tail risks associated with all shocks. I'm not going to try to bite off one tail and say it's all to the good. What I'd say is the U.S. is investing through the private sector capital in a range of new technologies, in a range of new companies with bets on different parts of the market structure. In my business, we don't have to figure out who's right or wrong. That's what financial markets are for doing. but we do want to step back and ask ourselves the question if various scenarios were to happen what are the implications for our remit, our remit as you know we talk about as stable prices and full employment but inching into that again you know with the history of of my visits to the IMF 20 years ago we also want to think about financial stability risks and the way i think about it might be a little bit different i don't think the central bank or the international policy making set that we're in the we should be in the business of stopping variance away from some from modal outcome but what we got to want to ask ourselves though are there negative tailside risks that we can do something about and we have to be pretty humble about that question i've given the task force every ability to sort of ask themselves, what are the upsides, what are the downsides, and what are the implications for us? The same way I'm not going to prejudge FOMC meetings, I'm going to try not to prejudge where they come from. Yes, very good. By the way, Kevin says we both have been on task forces. He was leading one that resulted in the Queen of England reporting the results to the Parliament. So it's a very special chairmanship you offer.