- Federal Reserve Chairman Kevin Warsh told the IMF-World Bank meetings in Bangkok that AI is a positive economic “shock” that could “fundamentally” change monetary policy. He has set up an AI task force and plans a hearing on productivity and jobs in the Bay Area on November 16.
- Former Fed Vice Chair Donald Kohn said AI may already be weighing on wage demands because workers are worried about their jobs. He noted that the US economy is at full employment with strong demand, yet wages have continued to come down in both nominal and real terms.
- The topic dominated other gatherings too, from the Bund Summit in Shanghai to a People’s Bank of China keynote by Governor Pan Gongsheng. The scrutiny comes as competition for capital pushes many government bond yields to multi-decade highs.
- The IMF warned that Asian economies tied to the AI supply chain are exposed to any downturn in AI demand and should build fiscal buffers now. Peterson Institute president Adam Posen argued a correction in megascaler stocks would more likely resemble 1987 or 2000, with profits rotating rather than the real economy breaking.
What Happened?
AI has moved onto the agenda of the world’s central bankers this month, CNBC reported from Beijing. Warsh used his appearance in Bangkok to describe AI as a positive shock and flagged a November 16 hearing on productivity and jobs. Kohn, speaking on the sidelines of the Bund Summit, said he expects AI’s impact on jobs to come up at upcoming central bank meetings at the Bank for International Settlements in Basel. Posen said attendees were surprised at how resilient the world economy has been despite debate over its exposure to a slowdown in US AI spending.
Why It Matters?
A Fed chair who views AI as a productivity shock is signaling that he may be willing to look through some inflation pressure if he believes output capacity is rising. Kohn’s observation that wages are falling at full employment is the kind of evidence that would support that view, since it suggests AI is restraining labor costs. For bond investors, that matters because the debate over whether the Fed needs to tighten further is happening while long yields sit near multi-decade highs. If AI is restraining wages, the inflation risk shifts toward energy and capital spending rather than the labor market.
What’s Next?
The next test is how much of this thinking shows up at next week’s Fed meeting and in Warsh’s press conference. The November 16 Bay Area hearing should give the clearest view yet of how the Fed plans to measure AI’s effect on productivity and employment. Investors should also watch wage data in upcoming jobs reports, since continued nominal declines would strengthen the case that AI is a disinflationary force. A sharp correction in AI stocks would test Posen’s view that the damage would stay contained.
Affected Tickers and Coins: TLT, SPY, QQQ
Source: CNBC
