Federal Reserve's Musalem: Cannot Count on AI Boom to Solve Inflation Issues

Odaily, Federal Reserve's Musalem stated that policymakers cannot rely on the potential productivity boom from artificial intelligence to alleviate persistently high inflation. Musalem noted: "I believe it would be risky to count on improved future productivity growth prospects to solve our current inflation problem." The conflict with Iran has reignited upward price pressures and prompted more policymakers to warn that if inflation remains persistently high, further interest rate increases may be necessary.

Musalem warned that after adjusting for inflation, the Federal Reserve's benchmark interest rate is currently below the so-called "neutral level" — a level that neither inhibits nor stimulates the economy. He also pointed out that the labor market remains stable, inflation is "significantly above" the Fed's 2% target, and long-term inflation expectations are showing a "gradual upward" trend. (Jinshi)