Comments from Fed’s Barr cross the wires:
- Expects GDP growth to pick up a bit in the second half of the year, from a 2% pace in the first half.
- Risks to achieving the inflation target have increased; risks to the labor market have receded.
- There is a need to recalibrate policy; base case is that further policy adjustments likely will be needed.
- Labor market solid, supported by business investment and consumer spending.
- Inflation is a key concern; Fed has been “knocked off course” to its 2% goal.
- Does not see a clear trend toward a timely return to 2% inflation.
- Makes sense to pencil in an AI productivity boost in the medium term, but difficult to project how or when.
- Is optimistic AI will boost productivity in the longer term.
- Too early to know if AI will push up the neutral rate of interest.
- AI buildout likely to be a strong boost to US economic activity in the next year or so.
- Should be prepared for serious short-term disruptions in the labor market from AI.
- Broad productivity gains from AI may take some time.
Analysis: Barr’s message is mixed, but inflation is the immediate policy concern. He sees a solid labor market and somewhat faster growth ahead, while saying the risks of missing the inflation target have increased. His call for further policy adjustments does not, on its own, specify their direction. Traders will need clearer evidence that inflation is moving back toward 2% before treating an AI-driven productivity boost as a near-term answer to that concern.
AI could support investment and growth over the next year or so, according to Barr. He is less certain about when broader productivity gains will arrive and warns of possible labor market disruption along the way. That distinction matters: stronger activity from building AI capacity does not necessarily mean an immediate improvement in economy-wide productivity.
This article was written by Greg Michalowski at investinglive.com.