Fed’s Cook Says AI Productivity Boom May Call for Broader Policy Toolkit

Cook described the current moment as a potential “creative destruction” resetting of economic activity, where AI enables faster innovation, but may also displace workers before new opportunities take hold. She stressed that while AI has the capacity to drive long-term growth and new industries, the transition could see unemployment rise in the short term, a shift that conventional interest-rate adjustments might not be well-suited to counteract.

“In a productivity boom like this, increased unemployment may not stem from slack in the economy, and typical demand-side policy could end up stoking inflation while trying to counter what is essentially structural change,” Cook said, adding that other policy tools, including workforce training and education, may be more effective in helping displaced workers.

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Workers themselves are concerned about the prospect of AI and automation potentially taking their jobs, according to PYMNTS Intelligence Wage to Wallet™ Index. Labor economy workers are less worried about possibly losing their jobs than office workers.

Cook’s remarks underscore growing debate within the Fed about how technological change intersects with the central bank’s dual mandate of maximum employment and stable prices. Traditionally, monetary policy has responded to labor market weakness with rate cuts to stimulate demand. But if AI-related shifts reduce labor demand even amid strong productivity, relying solely on rate adjustments could risk overheating the economy.

Cook also flagged that an AI-driven investment boom, evident in heightened spending on data centers, semiconductors and related infrastructure, might raise the neutral interest rate in the near term. This “equilibrium” interest level that neither accelerates nor restricts growth could be higher initially because of strong investment demand, though it might decline later if inequality widens and consumer demand softens.

Her perspective contrasts with some colleagues on the Federal Open Market Committee who view AI’s impact more optimistically.

The debate reflects broader uncertainty about how emerging technologies will shape labor markets and inflation dynamics. Cook’s remarks add to a series of recent speeches by Fed officials grappling with whether the central bank’s tools are adequate for structural shifts that transcend typical economic cycles.