Federal Reserve President Michael Barr said artificial intelligence has the potential to transform the economy, but with different outcomes. Speaking at the Singapore FinTech Festival, the Fed Governor highlighted that the introduction of AI algorithms could enhance existing roles and tasks, while at the same time bringing about fundamental changes to leisure and work to increase efficiency.
He also emphasized that it is still too early to predict the outcome of AI penetration into the economy, noting that the two scenarios could unfold randomly and that a more intermediate scenario could emerge.
Barr cited a New York Fed study showing that AI technology has caused employers to scale back their hiring plans. The Governor suggested that there may be a link between the reduction in employment and the slowing of existing job creation.
Barr says AI reform could change monetary policy
Fed officials have lowered benchmark interest rates in their last two policy meetings in a row after employment fell sharply over the summer. Although the governor did not signal any short-term changes to monetary policy, recent public comments revealed that policymakers are divided on the possibility of a third interest rate cut in December.
Governor too highlighted Trillions of dollars worth of planned capital investment in data centers has the potential to bring significant changes to the economy, including improved productivity. He explained that a wave of large-scale investment in data centers has begun, resulting in the sector potentially attracting $3 trillion in data center infrastructure development.
Large corporations and major corporations are starting to invest in data centers. Formerly Cryppolitan reported Google, a subsidiary of Alphabet Inc., recently said it invested $6.4 billion in cloud infrastructure in Germany for data center expansion. The technology company did not disclose details of the investment, despite the size of the project.
Barr said capital inflows into data centers will impact the economy by increasing labor productivity and leading to higher output growth without putting undue pressure on inflation in the long run. The official explained that if large enough, these changes could have a significant impact on monetary policy. He warned that there is a risk of losses or corrections in the AI space if investments exceed short-term demand.
Recent Cryppolitan reported Wall Street investors are reportedly alarmed by Silicon Valley’s aggressive spending and investment in artificial intelligence.
Barr also pointed out that AI is rapidly penetrating the financial sector, and the results will be more beneficial if risks are carefully mitigated. According to the Fed president, the adoption of AI algorithms in the financial sector appears to be progressing. “We are most concentrated in areas where we can improve operational efficiency, such as applications that include text analysis, classification, and information retrieval and customer-facing functions within the enterprise.”
Barr believes central banks should use AI technology
He pointed out that the constant advancement and improvement of AI to support common business functions is a key aspect that raises expectations for technology to improve labor productivity. Barr advised that central banks around the world need to catch up with AI by increasing the speed of its adoption into institutions’ operations.
Barr noted that the Federal Reserve is making strides toward leveraging AI algorithms. He emphasized that the Fed aims to leverage appropriate AI tools by establishing an AI program and governance framework for the use of AI technology.
He said he is excited about modernizing the technology as an internal application of generative AI tools. He said the Fed is already applying GenAI tools to generate unit tests, translate legacy code and accelerate cloud migration.
Barr said this advancement allows Fed officials to achieve a variety of related goals faster with improved quality and an improved developer experience. He predicted that AI will play a pivotal role in the American economy in the future. Central banks are therefore dedicating the necessary resources to understanding this technology.
