With policy in a good place, Fed is probing AI’s economic impact, Daly says

By Ann Saphir

Feb 19 (Reuters) – San Francisco Federal Reserve President Mary Daly on Thursday said she feels monetary policy is where it should be, as the Fed tries to suss out the ​extent and timing of a possible productivity boost from artificial ‌intelligence that could shape where interest rates need to be in the future.

“Our price stability and full employment both seem to be in a good place, policy is in a good place,” Daly said in a live-streamed conversation with former Dallas Fed ‌President ​Robert Kaplan. “And we have the opportunity now to ⁠think through what information is ⁠coming in, what impact will AI have, how will productivity evolve, how will demand strength evolve and how should we manage policy going forward.”

The Fed last month left interest rates in their 3.50%-3.75% range, ​after cutting them by three-quarters of a percentage point last year to shore up what had been a weakening labor market. Daly previously ⁠said she supported the decision.

Businesses are increasing ⁠their use of technology, including AI, which should help ease ​inflation, she said. Meanwhile firms’ uncertainty over how AI will affect their ​future staffing needs is keeping a lid on their hiring, she ‌said.

And while some analysts, and even some Fed policymakers, feel the U.S. economy is headed for an AI-fueled productivity boost that enables faster economic growth without sparking inflation, Daly feels the jury is still out.

“We don’t want ⁠to get too far ahead, to constrain an economy that has a possibility of productivity coming down the (pike), but you don’t want to be so ⁠hopeful on productivity that ‌you forget you do have above-target inflation,” she said. “And ⁠that’s the balance of things that I think will ​really ‌dominate this year and next.”

On Thursday, Daly repeated she ​is hearing ⁠cautious optimism from businesses, and she said she expects inflation, currently above the Fed’s 2% target, “to continue to come down as the labor market remains just steady – not too hot, not too cold – as housing services (inflation) keeps coming down and as the tariffs roll through and off.”

(Reporting by Ann Saphir; Editing ​by Chris Reese)