Musalem says Fed cannot ease policy on hopes of AI productivity gains
The Fed vice chair says the economy is strong now, but only because growth is continuing, not because of expected AI gains.
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Federal Reserve Vice Chair Alberto Musalem says the central bank cannot cut interest rates on the strength of expected artificial intelligence productivity gains. He says the economy is very strong at the moment, but that strength depends on growth continuing.
The comment follows a run of similar remarks from other Fed officials this week. Fed President John Williams says economic momentum is strong and points to AI investment as a driver of inflation, and says it is imperative to bring inflation back to 2%. He also says one more rate hike is likely this year, though there is no rush to act. Fed's Goolsbee says the central bank need not try to please bond or stock markets, and Fed's Barr says the 2% inflation target needs a policy adjustment. Fed governor Lisa Cook has said she is watching for a temporary rise in unemployment from AI even as it adds to inflation pressure, while judging the labor market able to withstand higher rates for now.
Treasury yields have been climbing through this stretch of Fed commentary. The 10-year Treasury yield rose seven basis points on Monday to 5.23%, its highest level, having climbed almost 65 basis points since the end of August. Gold dropped 3.9% on Monday to $4,118.66.
Musalem's remark adds an explicit rebuttal to officials who have framed AI investment as a force that could hold down prices, ruling out the idea that hoped-for AI productivity gains could justify easing. It does not add a new hawkish data point of its own: the language of a very strong economy and no preset path has already come from Barr, Goolsbee and Williams this week. With the 10-year above 5.2% and three more hikes already priced in by markets, the comment reinforces rather than deepens the existing bond selloff and the higher-for-longer stance, leaving current positioning in stocks, gold and duration largely where it was.