The Bank for International Settlements (BIS), often called the "central bank of central banks," has warned that the artificial intelligence (AI) industry is shaking the "rules of thumb" that monetary policymakers have long relied on. The concern is that policymakers could misjudge conditions, as the industrial landscape and economic impact driven by AI show patterns starkly different from those of traditional industries.
"AI Affects Both Demand and Supply Simultaneously... Impact Varies by Industry"
According to Axios on the 29th, the BIS said in a recent report that AI is simultaneously affecting both the supply and demand sides of the economy while triggering both structural and cyclical changes, thereby obscuring the traditional indicators that central bankers have relied on when making policy decisions.
One example cited in the report is AI-driven demand growth. As an AI investment boom spreads worldwide, demand is surging for data center components such as semiconductors. This has led to a stock market boom, boosting on-paper assets and expanding consumption. However, these may be unrealized profits and an illusion, which is why concerns about the existence of an AI bubble continue to be raised.
While AI could cause large-scale job losses in the medium term, indicators showing whether such a phenomenon has actually begun remain unclear. In addition, there are projections that AI advances could lower inflation if they bring about productivity gains, but this too remains an area that cannot yet be confirmed.
The BIS economists who authored the report noted that "the considerable uncertainty surrounding the effects of AI poses multiple challenges for monetary policy and financial stability." They pointed out, "First, AI simultaneously affects both demand and supply in cyclical and structural ways. Moreover, the impact varies by industry sector, making it difficult to assess potential economic trends."
To handle this tricky macroeconomic environment, the U.S. Federal Reserve is also studying the economic impact of AI. Kevin Warsh, chairman of the U.S. Federal Reserve (Fed), launched task forces (TFs) to study the Fed's monetary policy strategy shortly after taking office. One of these focuses on AI's impact on the labor market and productivity, while other TFs are addressing related issues such as inflation measurement and economic data collection. The final conclusions and recommendations from these TFs are scheduled to be submitted by the end of this year.
They went on to warn, "Central bankers generally aim to maintain price stability, a solid labor market, and a sound financial system," adding, "But the AI boom has become a variable that complicates the situation across all three of these areas. The greater the uncertainty, the higher the risk of policy missteps."
U.S. Fed Also Studying AI's Economic Impact... Results Due Around Year-End
The researchers pointed out that AI is likely to have multifaceted economic effects on the virtual variables that are central to modern macroeconomic policy yet difficult to observe directly—namely, indicators such as the "natural interest rate" and the "natural rate of unemployment." The natural interest rate refers to the ideal level of interest rates that neither stimulates inflation nor causes a recession. The natural rate of unemployment refers to the "minimum structural unemployment rate that unavoidably occurs" due to job changes or industrial structural shifts, regardless of economic ups and downs. It can likewise be interpreted as the most stable level of unemployment that does not stimulate inflation.
If monetary policymakers overestimate the benefits on the supply side, or underestimate the demand pressure created by AI investment and asset effects, they could keep the base rate too low and stimulate inflation. Conversely, they could make the opposite mistake and inadvertently trigger an economic downturn.
