The Federal Reserve is currently investigating the possible effects of generative artificial intelligence (AI) on productivity, inflation, and the labor market. Fed Chair Jerome Powell made this announcement during a panel discussion at the European Central Bank’s Forum on Central Banking in Portugal. He mentioned that the significant investments being made in AI suggest that something big is on the horizon.
Powell stated that it is still too early to determine whether the adoption of AI technology will result in the elimination of jobs, the augmentation of existing jobs, or the creation of new ones. He mentioned that central banks may not have much influence over these outcomes but are actively engaging with experts to understand the potential impact on productivity, inflation, growth, and displacement.
The Federal Reserve is dedicating a considerable amount of time and effort to researching the potential effects of AI. While they are not currently using generative AI, they are closely examining other forms of AI and may consider using them in the future. In January, the International Monetary Fund (IMF) reported that AI could have a significant impact on employment in advanced economies, with 60% of jobs potentially being affected by AI technology.
According to the IMF, half of these jobs may benefit from AI integration, while the other half may see human tasks being replaced by AI applications, potentially leading to lower labor demand, reduced wages, and decreased hiring. Citi also published a report in June stating that over half of all finance jobs could be impacted by AI, with other industries like insurance, energy, and capital markets also having a high potential for automation.
Overall, the rise of AI technology has the potential to significantly transform various industries and the labor market, raising questions about productivity, inflation, growth, and displacement. The Federal Reserve and other financial institutions are closely monitoring these developments to better understand and prepare for the implications of AI technology.