Top academics have dismissed Kevin Warsh’s claim that an AI-induced productivity boom will create room for interest rate cuts, according to a snap FT economists’ poll that highlights the challenges facing Donald Trump’s pick for Federal Reserve chair.
Warsh, who Trump named as his nominee to replace Jay Powell at the end of January, has argued that AI will trigger “the most productivity enhancing wave of our lifetimes — past, present and future”. This will expand output and pave the way for the Fed to cut US borrowing costs from their current level of 3.5-3.75 per cent without triggering a rise in prices, he says.
Almost 60 per cent of the 45 economists polled by the University of Chicago’s Clark Center for Financial Markets this week said any impact on prices and borrowing costs over the next two years was likely to be negligible — lowering PCE inflation and the neutral interest rate by less than 0.2 per cent over the next two years.