‘Most consequential change’: Kevin Warsh says AI will reshape US economy, warns of a ‘bumpy’ road ahead

US Federal Reserve boss Kevin Warsh said on Friday that artificial intelligence (AI) is the “most consequential change” to the global economy and predicted that, though its effects would be positive, the path forward would be "bumpy".Speaking at an event during the IMF-World Bank Annual Meetings in Bangkok on Friday, he further pointed out that AI’s economic impact would unfold in phases, with an investment-driven rise in demand likely to push inflation higher in the short term.AI is the most consequential change to the economy“I'd say the advent of this new technology is probably the most consequential change to the US and the global economy in my lifetime,” Warsh said.He acknowledged that the AI investment boom could push prices higher in the near term.

However, he expects the technology to generate substantial benefits for businesses and economies over time.“There's really, I think, a huge benefit to the global economy, to the US economy over the horizon,” he said.AI could push inflation up before boosting productivityWarsh said he was approaching AI’s macroeconomic implications “soberly, responsibly” in his role overseeing the US central bank.The technology could create a short-term inflationary impulse through demand-side effects, while expected to deliver a positive supply-side shock in the long term How AI could help the Federal ReserveWarsh said he expected the Federal Reserve to use AI to better analyse data in its conduct of monetary policy, as an example of a positive effect.He further reiterated his view that AI would “make economies and countries that put it to good use more productive”, suggesting that the gains would depend partly on how effectively businesses and governments adopt the technology.Warsh warns of a ‘bumpy’ transitionDespite the potential benefits, Warsh cautioned against assuming a smooth transition.

Uncertainty over the technology’s development and the market structures that emerge around it could make the journey volatile for businesses, investors and policymakers. “The path from where we are to there is likely to be a very bumpy one,” he said, adding that the uncertainty extended to “our understanding of the technology” and the market structure of emerging AI industries.His remarks underline the challenge facing policymakers: balancing the near-term inflationary pressures associated with heavy AI investment against the possibility of sustained productivity gains in the years ahead.(With inputs from AFP)