AI Hype Risks Fueling Inflation, Chicago Fed Warns

Austan Goolsbee, President of the Chicago Fed, has expressed concerns that excessive hype around artificial intelligence (AI) could lead to inflation and economic overheating. He warned that if everyone expects a significant boost in productivity growth from AI, it could result in too much economic expansion, which would risk stoking inflation.

Goolsbee emphasized that with inflation above the Federal Reserve's 2% goal for over five years, ignoring supply shocks, such as the oil price caused by the Middle East conflict, is 'playing with fire.' He suggested rethinking the Fed's usual policy of looking through these shocks when considering monetary policy.

He also highlighted that elevated inflation has eroded public trust and confidence in the economy. Goolsbee stated that when inflation is high, people tend to have a crisis in public trust, putting the Federal Reserve at the center of this issue.