Federal Reserve chair nominee Kevin Warsh says the economic impact of AI is already showing up in boardrooms and balance sheets, even if official data will lag for years.
In a new interview with Sadi Khan, Warsh says that within a year, leading US companies will begin doing things that look unimaginable today, expanding margins and taking market share as AI-driven efficiencies compound.
According to Warsh, the dynamic will create a major challenge for policymakers, particularly central bankers who rely heavily on backward-looking data.
“A problem with that for a has-been government economist like me is we’re going to look at the data. And I don’t think the data will show these productivity gains for many years after the anecdotes reveal them.”
Warsh says those anecdotes are already turning positive, and he believes that in the coming years, AI will boost the economy without sparking higher inflation.
“As a first approximation, my simple version of this is everything technology touches gets cheaper… If you’re looking at the data… you’re going to be late. You’re not going to realize the country is able to have non-inflationary growth faster. So you’re going to have to make a bet.”
He compares the moment to the early 1990s, when former Fed Chair Alan Greenspan chose patience over preemptive tightening as the internet economy emerged.
“The closest analogy that I have in central banking is Alan Greenspan in 1993 and 1994. The internet revolution was with us. He believed, based on anecdotes and rather esoteric data, that we weren’t in a position where we needed to raise rates.
A lot of his peers at the Federal Reserve, and certainly in the academic profession and economics, they said, ‘Oh, the economy is overheating. You need to get going and raise rates. This will be inflationary.’
He sat on his hands. And he persuaded his colleagues to be patient. As a result, we had a stronger economy. We had more stable prices, and we had greater US competitiveness.”
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