AI Blurs Central Bank Policy Indicators, BIS Warns
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- Bank for International Settlements economists Iñaki Aldasoro, Leonardo Gambacorta, Enisse Kharroubi and Matthias Rottner published a paper finding AI simultaneously affects demand and supply in both cyclical and structural ways, blurring the indicators central bankers rely on.
- AI investment boom in the U.S. and other innovation hotspots is creating a surge in demand for semiconductors and data center components, while a stock-market wealth effect is fueling consumer spending — though concerns persist that some of the wealth is illusory and tied to an AI bubble.
- Federal Reserve Chairman Kevin Warsh has formed task forces explicitly focused on AI's impact on the labor market and productivity, plus separate groups on inflation measurement and economic data collection, with conclusions and recommendations due by year-end.
- Central banks including the Fed (meeting ending Wednesday), Bank of England and Bank of Japan (both meeting Thursday) must make real-time judgments on AI's direction, magnitude, and timeline for shifting unobservable variables like the natural rates of interest and unemployment.
- BIS warned that miscalibration risk runs both ways: overestimating AI's supply gains or underestimating AI-driven demand could leave rates too low and stoke inflation, while the opposite error could accidentally engineer a recession.
Why it matters: The Fed, Bank of England, and Bank of Japan are setting rates this week while navigating a measurement crisis: AI investment is generating near-term demand pressure on semiconductors and data centers, while potential long-run productivity gains point toward a disinflationary supply shock. Misreading the balance could mean either rates held too low stoke inflation or rates held too high trigger a recession — and Fed Chair Warsh has tied his task forces' year-end recommendations directly to resolving this AI-driven uncertainty.
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