AI: The 4 key statements from the Fed president at Jackson Hole

Kevin Warsh believes that artificial intelligence should permanently change the growth potential of the United States. During his first speech at Jackson Hole as chairman of the Federal Reserve, he designated the current period of “tipping point in history”. He admits, however, that the Fed still does not know when productivity gains will appear, how employment will grow and which companies will reap the value created. These questions therefore do not yet influence decisions on rates.

Four messages summarize Kevin Warsh’s position

The chairman of the Federal Reserve dedicated an entire part of his speech of August 28 to artificial intelligence. For him, technical progress goes beyond even the projections formulated by the most optimistic defenders of this field a few years ago.

This progression is already visible in investments. Corporate spending on equipment and intangible assets increased nearly 9% year-over-year, the highest pace since 2021. More than half of this growth is believed to come from AI-related infrastructure.

THE four essential statements from Kevin Warsh are based on the following elements:

• Advances in AI would support a much higher level of economic growth;
• Annualized token sales from the two main laboratories could exceed $100 billion;
• The Fed now considers AI as a possible new factor of production;
• No one yet knows whether the value will mainly benefit laboratories, chipmakers, energy providers or cloud companies.

The expression “token” does not designate a crypto here. It is equivalent to a unit of text processed or generated by an AI model. Companies and users purchase these units when they use a model through an application or API.

Kevin Warsh gives the two main laboratories annualized sales in excess of $100 billion, an increase of more than 500% in one year. This amount, however, comes from reports he cites and not from detailed reports published by the Fed.

AI could change growth potential

The status of “factor of production” granted to the AI ​​represents the most important part of the intervention. In economics, capital and labor define the quantity of goods and services that a state can produce. If artificial intelligence increases their efficiency, the economy would grow faster without automatically triggering an increase in inflation.

This progression would also complicate the Fed’s decisions. An undervaluation of productivity gains would lead the institution to maintain rates that are too high. An overestimation could, on the contrary, risk excessively stimulating demand and aggravating price pressures.

Kevin Warsh does not say that this mutation has already taken place. Rather, it asks whether AI will cause a significant and lasting increase in productivity, and when its impacts will become visible in on-chain data.

Also, he wonders about the consequences for workers. The use of models can complement certain professions, however it can also replace part of the tasks carried out by humans. The answer will depend on the areas concerned, the skills sought and the pace of adoption of the tools.

A group of experts from the Federal Reserve is currently working on employment and productivity. The conclusions of this team can be used to prepare future monetary policy decisions. Warsh nevertheless indicated that they had no effect on the institution’s current choices.

Distribution of benefits remains uncertain

Increased spending does not guarantee that all economic actors will benefit from AI. A significant portion of revenues may be concentrated in the hands of owners of scarce assets, such as advanced chips, data centers, energy and the most efficient models.

Companies that employ AI may also gain some of this value through lower costs or increased production. Users would benefit from less expensive or more efficient services. Kevin Warsh does not yet favor any of these hypotheses.

The Fed will mainly control what its chairman appoints “the second derivative” investments. The issue is not just whether spending is increasing, but whether its rate of growth is accelerating or slowing down. A slowdown would reveal that companies are reconsidering their profitability expectations.

The comments on AI describe a potential long-term change, and not an immediate transformation of monetary policy. Thus, the Federal Reserve now admits the macroeconomic importance of AI. However, it does not yet have the statistics necessary to determine its real impact on growth, employment or rates.