Fed's Cook: AI is causing a major shift, and the neutral interest rate may rise in the short term.

Federal Reserve Governor Tim Cook stated that artificial intelligence has triggered a generational shift in the US labor market and could lead to rising unemployment, a situation the Fed may not be able to address through interest rate cuts. While AI will bring new opportunities, in the early stages, job replacements may precede job creation, thus unemployment could rise and labor force participation could decline as the economy transforms. In this scenario, even with increased productivity, any Fed response could risk rising inflation if underlying unemployment is pushed up by structural factors. She also pointed out other "profound" challenges facing monetary policy: the AI ​​investment boom could push up the neutral interest rate in the short term. All else being equal, this could mean a need to tighten monetary policy. However, if the emerging AI economy leads to increased income inequality, or if the benefits of technological progress are concentrated in the hands of wealthier groups, then the neutral interest rate could decline over time. (Jinshi)