Chicago Fed's Goolsbee Warns AI Hype Risks Overheating Economy
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Chicago Fed President Austan Goolsbee warned on Tuesday that expectations artificial intelligence will fuel a burst in productivity growth could boost economic growth too much and risk stoking inflation, which has already remained above the Federal Reserve's 2% goal for more than five years. Speaking at an event sponsored by the Illinois Manufacturers' Association, Goolsbee said that in the next six months, if everyone believes there is huge productivity growth coming, that is a danger to the economy overheating, adding that the bigger the AI hype for the future, the bigger the danger of overheating. Goolsbee, who is not a voting member of the FOMC this year, said the Fed should rethink its usual policy of looking through supply shocks such as the oil price caused by the conflict in the Middle East, calling it playing with fire to ignore supply shocks when inflation has stayed above the 2% goal for more than five and a half years. He said some supply shocks do need to be watched, specifically those that do not go away, and the Fed has to consider responding to a persistent shock. On the economy, Goolsbee said the hiring rate is as low as the trough of a recession and the layoff rate is as low as the peak, calling it a very unusual situation, and said large federal deficits act as a stimulus and contribute to inflation.