Kevin Warsh and the AI Economy

Kevin Warsh’s first FOMC press conference focused less on a single rate decision and more on a broader question: is the Fed’s toolkit still fit for an economy being rewired by artificial intelligence?

The Fed’s new agenda is an AI agenda

His answer lies in the task forces he unveiled. Three of the five are AI-focused: productivity & jobs, inflation frameworks, and data. The overlap is no accident. AI is already reshaping capital spending, power demand, semiconductor prices, software costs and business formation. The harder question is whether official data can distinguish a true productivity boom from a temporary investment surge alongside a shrinking labor force.

Watching for Jobs

Consensus is AI will gut jobs, but there are near-term offsets

AI-driven productivity is a necessity, not a risk

Before asking whether AI will destroy jobs, ask whether developed economies can afford not to lift productivity. Two-thirds of the world now lives in countries with fertility below replacement, and the US-born labor force is projected to shrink over the next decade as the baby boomer generation continues to retire in large numbers, accelerating the exit of experienced workers.1 2 Manufacturing alone faces 1.9 million unfilled jobs by 2033.

At the same time, immigration policy has become more restrictive. In the US, net migration is projected to fall to 321,000 this year, down 90% from 3.3 million in 2023.4 Rather than replacing workers, AI is often filling roles that can’t be filled elsewhere.