The Federal Reserve, under the leadership of Chair Jerome Powell, is currently exploring the potential impacts of Generative Artificial Intelligence (AI) on productivity, inflation, and the labor market. During a panel discussion at the European Central Bank’s Forum on Central Banking in Portugal, Powell expressed a sense of anticipation regarding AI, suggesting significant developments are on the horizon.
However, it remains uncertain whether AI will eliminate jobs, augment existing roles, or create new ones. As the technology is still in its nascent stages, the Federal Reserve, like many other entities, is engaging with experts to understand its potential effects on economic indicators such as productivity, inflation, growth, and employment displacement.
Investments in AI are substantial, suggesting a major shift in technology. While the Federal Reserve is not currently using generative AI, it is dedicating a significant amount of time and effort to investigating its potential effects. The central bank may incorporate learnings from other forms of AI in its future operations.
The International Monetary Fund (IMF) has previously reported that the impact of AI on employment will be particularly significant in advanced economies. According to the IMF, about 40% of global employment is exposed to AI, but this figure rises to 60% in advanced economies. The IMF predicts that AI integration could lead to lower labor demand, reduced wages, and decreased hiring.
Citi, a global bank, has also highlighted the potential impact of AI on various industries. In a report, Citi suggested that AI could affect more than half of all finance jobs, with 54% of these jobs having a high potential for automation and another 12% having the potential to be augmented by AI. Other industries with a high potential for automation include insurance (46%), energy (43%), and capital markets (40%).
These predictions underscore the need for careful consideration of AI’s potential impacts on the labor market and economy as a whole. The Federal Reserve, along with other central banks and organizations, is actively engaged in these discussions to ensure a smooth transition towards a more AI-driven future.
