MNI: Fed Should Tread Cautiously On Productivity -Goolsbee
MNI (WASHINGTON) - Policymakers don't yet know whether the recent productivity surge will last and monetary policy should react cautiously, Federal Reserve Bank of Chicago President Austan Goolsbee said Friday.
If AI becomes the next general-purpose technology generating years of higher productivity growth, it will allow the economy to grow and wages to rise more without triggering inflation, he said.
If instead higher productivity in recent quarters is triggered by work from home, labor reallocation or a startup boom, then the benefits are one-off, he said.
"I’m excited by the prospect that the technologies many of you here are working on could usher in an era of rapid, lasting productivity growth. But it will not be easy to tell if this productivity surge is a blip or if it is going to be long-lasting," Goolsbee said in prepared remarks at Stanford University.
OVERHEATING RISK
There is "some intriguing evidence" that AI may be behind the boost in productivity recently, he said. But even if that's the case, the Fed needs to be mindful of risks that can come from getting "too far ahead of reality," he said.
Hot investment demand and soaring equity prices that lead to more spending can overheat the economy in the short run, and that could ultimately end in a 2001-style recession, he warned.
"These anticipatory effects can put the Fed into a tough position," he said. (See: MNI POLICY: Fed Leans Into Prospect Of Productivity Upgrade)