Federal Reserve's Goolsbee: Rising AI productivity expectations combined with oil price increases could force central banks to raise interest rates

Chicago Federal Reserve President Austan Goolsbee on Thursday further intensified his warning: the market's growing expectations for AI's potential to enhance productivity could fuel inflation and force the Fed and other central banks to raise interest rates. Goolsbee stated: "The stronger the hype about future productivity, the higher interest rates may need to go to prevent the economy from overheating. More importantly, facing supply shocks in the short term—whether from oil prices, supply chain disruptions, or other factors—will make the problem more severe." These remarks further expand on the viewpoint Goolsbee first publicly raised earlier this month. He then questioned the idea that AI has an inflation-suppressing effect, thereby creating room for central banks to cut rates—a view championed by many officials in the Trump administration and by the new Federal Reserve Chairman, Kevin Warsh. During the 1990s, as computers became more widely adopted, an unexpected productivity surge in the United States drove strong economic growth without triggering inflation. But Goolsbee argues that if productivity improvements are already expected by the market, the situation differs. The market could preemptively spark a spending spree, pushing up prices even before the actual productivity gains materialize. (Jin Shi)