WASHINGTON — Federal Reserve Gov. Lisa Cook said Tuesday that while artificial intelligence holds significant promise for boosting productivity and long-term growth, it could also complicate monetary policy and reshape labor markets in ways that test the central bank’s dual mandate.
Speaking at “The Great Realignment: Navigating AI, Demographic, and Geoeconomic Shifts,” the 42nd Annual National Association for Business Economics Economic Policy Conference here, Cook said she remains “appropriately cautious” but optimistic about AI’s capacity to drive innovation. Drawing on her academic background in innovation and machine learning, she said AI can accelerate idea creation and broaden access to advanced analytical tools, potentially democratizing entrepreneurship and lifting productivity growth over time.
For financial institutions and the broader economy, Cook suggested the transition could be uneven. She described AI as the latest wave of “creative destruction,” warning that job displacement may precede job creation. Demand has already softened in some occupations, including coding roles, and unemployment among recent college graduates has edged higher, even as the overall jobless rate remains low at 4.3% and layoffs are subdued. The shift, she said, could temporarily push up unemployment and reduce labor force participation before new AI-driven roles fully emerge.
Cook emphasized that stronger productivity growth could alter how policymakers interpret labor-market signals. In a productivity boom, rising unemployment may not necessarily signal economic slack. That dynamic could limit the effectiveness of traditional demand-side monetary policy, as easing to address job losses might also fuel inflation. In such a scenario, she said, education, workforce development and other nonmonetary tools may be better suited to address structural labor dislocations.
She also pointed to implications for the neutral rate of interest — the long-run rate consistent with stable inflation and maximum employment. Surging AI-related investment in data centers and semiconductors, even amid elevated interest rates, suggests strong aggregate demand that could mean the neutral rate is higher than before the pandemic. Over time, however, that could reverse if productivity gains are fully realized or if income inequality widens during the transition.