[The Fed’s Goolsbee: Rising AI productivity expectations, combined with oil price increases, could force central banks to raise interest rates]

Chicago Fed President Goolsbee further reinforced his warning on Thursday: market expectations that artificial intelligence will boost productivity are heating up, which may raise inflation and force the Fed and other central banks to raise interest rates. Goolsbee said: “The more intense the speculation about future productivity, the higher interest rates may need to be to prevent the economy from overheating. More importantly, in the short term, facing supply shocks—whether from oil prices, supply chain disruptions, or other factors—will make the problem even worse.” The above remarks further expanded on the view Goolsbee first raised publicly earlier this month. At the time, he challenged the notion that AI can suppress inflation, thereby creating room for central banks to cut rates—an idea that is promoted by many officials in the Trump administration as well as the Fed’s newly appointed chair, Wusch. In the 1990s, as computers became more widely adopted, U.S. productivity unexpectedly increased, driving rapid economic growth without triggering inflation. But Goolsbee believes that if productivity gains are already what markets expect, the situation will be different. Markets may spark a spending surge in advance, pushing up prices before actual productivity improvements are realized.