St. Louis Federal Reserve President Alberto Musalem pushed back against growing optimism that artificial intelligence-driven productivity gains could eventually solve the inflation problem and justify easier monetary policy. Speaking at an economic conference in Reykjavik, Musalem warned that it would be dangerous for the Fed to rely on hypothetical future productivity improvements while inflation remains well above target and inflation expectations continue drifting higher. “I believe it would be risky to rely on the prospect of higher productivity growth in the future to solve our inflation problem today,” he said.
Musalem argued that the better approach is to maintain “a vigilant monetary policy focused on restoring price stability.” His remarks highlight an increasingly important debate emerging inside the Federal Reserve between policymakers who believe AI could eventually become structurally disinflationary and officials who insist the Fed cannot base current policy on uncertain future technological gains. Musalem acknowledged that AI could eventually improve productivity, but stressed that “the jury is out” on how much benefit it will ultimately generate. In the meantime, he noted that AI investment is already contributing to stronger demand for chips, data centers, and infrastructure, potentially adding to inflation pressures rather than reducing them.
The St. Louis Fed president also warned that prematurely easy monetary policy could damage the Fed’s inflation-fighting credibility. “Moving or holding policy rates too low could actually cause longer-term interest rates to rise,” Musalem said, if investors begin questioning whether the central bank is truly committed to returning inflation to the 2% target.
