Fed Governor outlines AI's impact on inflation and labor

Federal Reserve Governor Cook used a remarks session at Oakland Tech Week to describe artificial intelligence as a general-purpose technology comparable to the steam engine, electricity and the internet. He said AI now influences every facet of the Fed's work, from monetary policy to bank supervision.

Cook noted that AI-driven investment has pushed prices for chips, computers and software higher, contributing to inflation that has stayed above the Fed's 2 percent target for the past five years. He cited a "$2 trillion in announced plans" for AI-related data-center construction and observed that electricity and water costs are each up around 5 percent over the past year, while core goods prices are running at a 3 percent annual pace. The governor cautioned that sector-specific price spikes could spill over into broader price pressures, but argued that monetary policy tools are too blunt to target narrow sectors.

Productivity gains from AI, Cook said, could provide "modest disinflation within the next few years," though the timing and magnitude remain uncertain. He emphasized that a broad-based productivity boom would need to increase supply capacity more than demand to ease price pressures, and that the Fed will watch how quickly businesses adopt AI tools.

On the labor front, Cook observed that the unemployment rate and layoffs have remained low and relatively flat over the past two years despite rising AI adoption. He acknowledged early signs of reduced labor demand in coding and translation jobs and noted that recent college graduates face tougher entry-level prospects. The governor warned that a supply-side mismatch could raise unemployment temporarily, limiting the Fed's ability to respond without risking higher inflation.

Cook concluded that the Fed will continue to monitor AI's speed, direction and economic impact, integrating new data into its assessment of the dual mandate of price stability and maximum employment.