Fed Musalem Warns Against Relying on AI to Lower Inflation

St. Louis Federal Reserve President Alberto Musalem said the United States should not lower interest rates based on unproven hopes that artificial intelligence will boost productivity. Musalem warned that easing monetary policy prematurely could destabilize inflation expectations and harm long-term economic growth. His remarks signal a growing divide within the Fed over how technology-driven efficiency gains should influence current borrowing costs.

### Productivity Gains Remain Speculative Musalem argued that relying on future productivity growth to solve current inflation is a risky strategy for the central bank. On May 28, he offered remarks prepared for delivery to a Central Bank of Iceland and Northwestern University economic conference in Reykjavik, noting that while AI is driving immediate demand for chips and data centers, its impact on broader efficiency remains unconfirmed. Musalem believes the Fed must maintain a vigilant policy focused on returning inflation to its 2% target.