Fed's Musalem warns against betting on AI to ease inflation
St. Louis Fed President Alberto Musalem said it would be risky for the central bank to rely on AI-driven productivity gains to curb inflation, warning that easing policy prematurely could backfire.
St. Louis Federal Reserve President Alberto Musalem on Thursday pushed back against the idea that artificial intelligence will help tame inflation by boosting productivity, warning that the central bank should not ease monetary policy based on that expectation.
Speaking at an event, Musalem argued that counting on future AI-driven productivity gains to solve today's inflation problem is risky. He noted that with the real policy rate below the Fed's estimate of long-run neutral, inflation running well above target, longer-term inflation expectations drifting higher, and the labor market remaining stable, premature easing could allow price pressures to become entrenched. For traders monitoring rate expectations, Musalem's remarks reinforce the hawkish tone from several Fed officials this week, suggesting the central bank is in no hurry to cut rates. NowPrice's real-time fed funds futures pricing reflects the latest shifts in market expectations for the policy path.
Looking ahead, markets will focus on upcoming inflation data, particularly the core PCE price index, to gauge whether progress on inflation has stalled. Musalem's comments also highlight the debate over AI's potential economic impact, a theme that could influence long-term rate expectations. Traders should watch for further Fed commentary and data releases that may clarify the timing of any rate adjustment.