Fed's Waller on AI: Must let the disruption occur, trust long-run benefits will exceed costs

Core Insights - The Federal Reserve is increasingly focused on the implications of artificial intelligence (AI) for economic policy, with a significant portion of discussions dedicated to this topic [2][3] - The Fed governor emphasizes the historical trend that new technologies lead to economic growth and job creation, despite initial job losses [3][4] - There is a recognition of the challenges posed by AI, including potential job displacement, particularly among college-educated workers, but also an opportunity for retraining and adjustment [5][6] Group 1: Economic Impact of AI - The Fed governor believes that the disruption caused by AI should be embraced, as the long-term benefits are expected to outweigh the costs [2][3] - Historical evidence suggests that technological advancements typically result in greater employment and productivity, with capital and labor being complementary [3][4] - The transition period may involve job losses before the benefits of new job creation become apparent, highlighting the difficulty in forecasting future job markets [4] Group 2: Job Market Dynamics - Current AI-related job losses are primarily being managed through attrition rather than mass layoffs, with companies focusing on retraining employees [5] - Layoffs are anticipated to rise, particularly affecting workers with college degrees, as AI continues to evolve [5][6] - The Fed governor acknowledges that there will be both winners and losers in the AI landscape, with productivity gains being a key focus for the Fed [6] Group 3: Regulatory Perspectives - The U.S. approach to AI regulation, which allows technology to develop before implementing regulations, is viewed as superior to the European model of preemptive regulation [7] - This regulatory philosophy is credited with enabling the U.S. to lead in technological advancements during the 1990s [7] Group 4: Future Outlook - A Barclays report suggests that AI investment may have peaked in the first half of the year, indicating a potential shift in the investment landscape [8] - The Fed governor notes that increased capital investment from AI could lead to a higher neutral interest rate in the future [8][10] - The integration of large language models in analyzing Fed communications has been ongoing for nearly a decade, indicating a long-standing relationship between AI and economic policy discourse [9]