Federal Reserve Governor Michael Barr has stated that artificial intelligence will inevitably transform economies, though the specific outcomes of this transformation remain uncertain. Speaking at a recent event, Barr acknowledged both the potential benefits and risks associated with AI's integration into the workforce.
Barr highlighted the possibility of short-term job losses due to AI-driven automation, but expressed optimism that new, higher-paying jobs would emerge in the long term. He also noted that the pace of AI adoption could influence hiring rates in certain sectors, contributing to a 'low-hire, low-fire' job market. The Fed is actively monitoring AI adoption rates and technological advancements to understand their implications for employment trends and monetary policy.
Barr has previously outlined two potential scenarios: gradual AI integration that enhances productivity and a more disruptive transition where AI replaces entire occupations. He emphasised the importance of considering how AI could affect core policy variables, such as the natural unemployment rate and the neutral interest rate. Barr also cautioned about the risk of AI concentrating economic and political power, potentially exacerbating inequality.
