5 Reasons AI Disruption Is Bad Rationale For Rate Cuts

Treasury chief Bessent and Fed chair nominee Warsh say AI is a key reason for the Fed to cut rates. They think AI will make workers more productive so the economy can grow without inflation.

Former NY Fed chief Dudley disagrees for 5 reasons. He explained in his Bloomberg column, and here’s a quick recap.

Dudley’s 5 Reasons AI Disruption Is Bad Rationale For Rate Cuts

1. Nobody knows when and how much AI will have any effect on productivity.

2. Extreme AI investment, including $600b in spending from 4 Big Tech firms in 2026 alone, could actually be inflationary.

3. Higher productivity growth may require higher, not lower, rates like it did during the late-1990s internet boom.

4. If AI renders lots of workers’ skills obsolete, labor cost may actually rise for the remaining relevant workers.

5. All preemptive cuts require high confidence in one’s forecast, and the AI rate cut theory is highly speculative.

Below is a link to Dudley’s detailed rundown of these 5 items.

___
Reference:

– AI Is No Excuse for the Fed to Cut Interest Rates