Artificial Intelligence, Structural Shifts, and Monetary Policy Remarks by Distinguished Fellow Lael Brainard

Distinguished Fellow Lael Brainard recently spoke on artificial intelligence, structural shifts, and monetary policy at the College of Central Bankers and Bloomberg Symposium. She highlighted one of the most consequential economic transitions underway today: the way AI is reshaping growth, labor markets, and the policy landscape.

Key Themes:

• AI as a General-Purpose Technology
  • AI’s rapid diffusion is already transforming capital allocation, firm behavior, and the link between employment and growth. With annual AI-related investment potentially reaching $1T, the economy is experiencing a new form of capital-based unbalanced growth.

• Understanding Today’s “Jobless Growth”
  • AI frontier firms are scaling through capital more than labor, while firms in traditional sectors are pausing hiring as they evaluate future workforce needs. This helps explain how strong output growth can coincide with cooling labor markets.

• A Perfect Storm of Supply Shocks
  • Tariffs, geopolitical tensions, and lingering pandemic disruptions have created supply-driven challenges that complicate monetary policy. These shocks move inflation and employment in opposing directions and underscore the role of executive actions in maintaining stability.

• Emerging Financial Stability Risks
  • The AI investment surge carries familiar warning signs: stretched valuations, hidden leverage, interconnected exposures, and liquidity mismatches. With significant debt tied to AI cloud buildouts, careful monitoring is essential.

• Policy Implications
  • Fiscal and structural tools, such as tax policy, workforce development, and targeted support for sectors not lifted by AI, will be key to managing distributional effects. At the same time, monetary policy must navigate an economy where AI-driven capital deepening coexists with a softening labor market, making it essential to understand AI’s diffusion to assess productivity, inflation dynamics, and the neutral rate.

She concluded that AI-driven structural change is still in its early stages. Viewing today’s developments through the lens of capital-based unbalanced growth offers a clearer picture of how AI is reshaping the economy’s trajectory.