AI promises to boost productivity, but its impact on inflation remains a bit of a black box. That has not stopped tech optimists — across Silicon Valley and Wall Street — from calling on the US Federal Reserve to already incorporate AI’s cost-cutting potential into its monetary policy. The head of Northern Trust’s asset management unit told the FT this week that the technology will be “massively disinflationary” and that the central bank should “hold steady” on rate decisions. Kevin Warsh, Donald Trump’s nomination to be the Fed’s next chair, has also argued that AI can ease price pressures, enabling the rate cuts that the president desperately wants.
In theory, they have a point. AI can automate administrative tasks, produce content in seconds and analyse company data. This can boost the productivity of existing workers, raise supply, and push down the price of products and services — and it can enable businesses to save on labour costs. Changes to the Fed’s rate policy filter through to households and businesses with a long lag. So, it makes sense for central bankers to at least consider the forthcoming impact of large language models on economy-wide efficiency gains and prices.
But in practice, making actual monetary policy adjustments today based on the promise of AI is a shot in the dark. For a start, LLMs are still evolving and use of the technology in business is not yet widespread. Fewer than one-fifth of US companies had adopted it by the end of 2025, according to the Census Bureau data. It will take further time for boardrooms to optimise its usage in their organisations. Though some companies have cited automation as the reason for redundancies, a recent global study found over 80 per cent of senior executives reported no impact of AI on their company’s employment or productivity so far.