Fed’s Cook: AI Adding To Inflation Now, Could Bring ‘Painful’ Labor Transition
By CU Today Staff —
OAKLAND, Calif.—Federal Reserve Gov. Lisa Cook said artificial intelligence is already adding inflationary pressure to the U.S. economy and could eventually produce a “painful” transition in the labor market, even as she expects the technology to deliver productivity gains and higher living standards over the longer term.
Cook made the comments Monday during the opening keynote at Oakland Tech Week, cohosted by the Kapor Center.
Cook said AI-related investment has contributed to inflation over the past year as prices for chips, computers and software have surged. She said the massive data-center buildout is also increasing demand for construction labor and energy, potentially spreading price pressures beyond the technology sector.
“Currently, I anticipate that productivity gains will provide modest disinflation within the next few years. However, I do not expect those effects to arrive in time to offset the broadening inflationary pressure later this year,” she said.
The labor market effects have so far been limited, Cook said, with unemployment and layoffs remaining low even as AI adoption has accelerated. But she pointed to evidence of reduced labor demand in software coding and simultaneous translation and said recent college graduates are having greater difficulty finding their first jobs, possibly in part because AI can perform entry-level tasks.
“It is my hope that AI adoption will continue to occur at a pace and in a way that allows job creation to match or exceed job destruction," Cook stated.
Cook also tied the AI boom directly to the Fed’s interest rate outlook, noting she joined the rest of the Federal Open Market Committee in voting to raise rates 25 basis points at its September meeting. She said total inflation was an estimated 3.8% in the 12 months through August, while core inflation was 3.4%.
“In the short term, AI appears to be adding inflationary pressures to the economy, postponing inflation's return to our 2% target," Cook said. "In the medium term, while I expect that productivity growth may modestly ease those inflationary pressures, the labor market will be at risk of entering a painful transition. In the long term, I am optimistic that AI-fueled productivity growth can raise living standards for all Americans.”
Originally reported by CU Today.