The Fed Chair Says AI Is Moving Faster Than Even Its Believers Predicted

Federal Reserve Chair Kevin Warsh declared artificial intelligence (AI) a potential fourth factor of production, which could raise the economy's non-inflationary growth ceiling and change the way the Federal Reserve makes rate decisions. While token sales at two leading AI labs reached $100 billion annually, up 500% in 12 months, they are excluded from official productivity data.

Warsh emphasized that the Fed now acknowledges AI as a new variable that could impact the economy and monetary policy. For example, if AI joins the list of factors of production, the economy might produce more without generating inflation, shifting the focus of every future rate decision. Although Warsh did not specify the names of the two AI labs, the substantial increase in token sales suggests a significant adoption curve that could eventually show up in productivity statistics.

Warsh's remarks indicate that the Federal Reserve has begun treating AI as a monetary policy problem to solve, rather than just a technological development to observe.