BOJ Deputy Warns of AI's Potential Long-Term Interest Rate Impact
Bank of Japan Deputy Governor Shinichi Uchida has highlighted the potential long-term impact of artificial intelligence on the neutral rate of interest. In a speech on Monday, Uchida noted that AI is driving a significant surge in demand, which is contributing to inflationary pressures and higher long-term interest rates. He described this as a "big positive demand shock" that is pushing up both economic activity and prices.
Uchida also pointed out that AI could influence the supply side of the economy. He suggested that the technology might boost productivity and enhance capital stock accumulations, factors that could ultimately affect the neutral rate of interest, often referred to as r-star. This rate represents the interest rate that would prevail in an economy with stable prices and full employment.
The deputy governor's remarks come as central banks worldwide grapple with the economic implications of rapid technological advancements. While the immediate focus has been on the demand-side effects of AI, Uchida's comments underscore the need to consider its broader macroeconomic impacts, including potential changes to the neutral rate.