Fed must dig deep on AI impact to make right rate calls ahead, Daly says

• Most macro-level studies currently show limited evidence of AI significantly impacting productivity growth, though individual companies may be seeing improvements
• Some economists compare potential AI impact to the 1990s computer and software adoption, which enabled faster growth without triggering inflation
• The Fed is evaluating whether AI-driven productivity gains could allow economic growth without requiring tighter monetary policy through rate increases

Summary: Fed Must Assess AI's Economic Impact for Future Rate Decisions

Key Official and Message:

San Francisco Federal Reserve President Mary Daly stated the Fed must thoroughly analyze data to determine whether artificial intelligence is genuinely boosting productivity and enabling faster economic growth without triggering inflation. This assessment is crucial for future monetary policy decisions.

Main Economic Question:

The central issue is whether AI investments can create an economy similar to the 1990s tech boom—where growth accelerated while inflation remained subdued—potentially allowing the Fed to avoid tightening policy through higher interest rates.

Current Evidence:

Daly noted that "most macro-studies of productivity growth find limited evidence of a significant AI effect" at the economy-wide level. While individual companies and specific sectors may be seeing improvements from AI investments, these gains haven't yet translated into measurable productivity growth across the broader economy.

Timing Uncertainty:

Two possibilities exist for the lack of visible impact: either it's too early to detect results from recent corporate AI investments, or economy-wide transformations simply require considerably more time to materialize.

Policy Context:

The Trump administration claims AI is already delivering productivity gains, and some economists predict rising AI investment will further boost productivity growth. These assessments could influence Fed rate policy if substantiated by data.

Market Implications:

The Fed's evaluation of AI's economic impact will be critical for interest rate decisions. If AI proves to boost productivity without inflation, it could support a less restrictive monetary policy environment. However, the current lack of concrete macro-level data suggests the Fed will maintain a cautious, data-dependent approach.