By Howard Schneider<\/p>\n
WASHINGTON, May 6 (Reuters) – Rising productivity won’t necessarily lower inflation and could actually increase it if businesses and households anticipate future gains and begin to increase spending, leading to higher prices \u200cand the possible need for tighter monetary policy, Chicago Federal Reserve President Austan Goolsbee said on \u200cWednesday.<\/p>\n
In comments that foreshadow a coming debate with incoming Fed Chair Kevin Warsh, who has argued for the disinflationary impact of higher productivity, Goolsbee \u200bsaid that while the lower inflation argument seems intuitive as companies learn to make more with less, “the implications for what that would mean for interest rates” remain an active area of debate.<\/p>\n
“If people expect an increase in productivity coming in the future … it can change their behavior today,” as households, companies and shareholders anticipate rising income and wealth, Goolsbee said in \u200ccomments prepared for delivery at a Milken \u2060Institute conference in Los Angeles. “It can lead to increased spending and potentially overheat the economy before the productivity boom has actually arrived. In that case, the fundamentals suggest rates would \u2060need to rise.”<\/p>\n
“It’s critical we be careful about activity driven by assumptions of future growth,” he said. “The bigger the hype, the more rates would need to rise to prevent overheating.”<\/p>\n
Former Fed Chair Alan Greenspan argued against rate hikes in the mid-1990s on \u200bthe \u200bgrounds that productivity was improving and would ease price pressures, even \u200bif not widely anticipated. Goolsbee, however, noted that \u200cby the end of that decade, the U.S. central bank was hiking rates even as the productivity surge was expected to continue.<\/p>\n
DEPLOYMENT OF ARTIFICIAL INTELLIGENCE TECHNOLOGY<\/p>\n
Productivity currently is expected to continue improving as artificial intelligence technology is deployed across more businesses, but the gains arguably are being realized already in the form of record equity prices that are helping sustain spending among more affluent households.<\/p>\n
In testimony during his confirmation hearing before the Senate Banking Committee last month, \u200cWarsh was careful not to pin down his views about how \u200bimprovements in productivity might influence interest rates.<\/p>\n
But the former Fed governor said \u200bhe felt the impact of AI on the \u200beconomy’s productive capacity may end up being far greater than its impact on demand, a \u200cview consistent with downward pressure on inflation.<\/p>\n
“I don’t claim \u200bto have perfect knowledge of \u200bhow any of these are going to go, but I do have an intuition the pace of change is accelerating,” Warsh told the lawmakers, and that the impact on the economy’s potential “could be considerably bigger” \u200bthan the influence on demand as \u200cfirms build new data centers and ramp up use of electricity.<\/p>\n","protected":false},"excerpt":{"rendered":"By Howard Schneider WASHINGTON, May 6 (Reuters) – Rising productivity won’t necessarily lower inflation and could actually increase…\n","protected":false},"author":2,"featured_media":471814,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[174],"tags":[12479,55795,79,179,18,182,19,185,5389,17,87781,3796],"class_list":{"0":"post-471813","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-artificial-intelligence-technology","9":"tag-austan-goolsbee","10":"tag-business","11":"tag-economy","12":"tag-eire","13":"tag-federal-reserve","14":"tag-ie","15":"tag-inflation","16":"tag-interest-rates","17":"tag-ireland","18":"tag-kevin-warsh","19":"tag-productivity"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/116529507009038282","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/471813","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=471813"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/471813\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/471814"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=471813"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=471813"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=471813"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}