Job losses due to AI: US Fed gov Cook has important observation; says unemployment could rise in short-term – The Times of India

Federal Reserve governor Lisa Cook on Tuesday (local time) cautioned that artificial intelligence is beginning to reshape the US labour market in ways that could further push unemployment rates higher and limit how effectively the central bank can respond with interest rate cuts.Speaking in remarks for a national association for business economics conference, Cook said, “we appear to be approaching the most significant reorganization of work in generations,” citing changes in computer coding roles and the struggles some workers are facing in landing entry-level positions.

Cook noted that although AI is expected to generate new opportunities over time, the transition period could prove uneven. In the early stages, she warned, “job displacement may precede job creation, such that the unemployment rate may rise and participation in the labor force may decline as the economy transitions.”“In a productivity boom such as this, a rise in unemployment may not indicate increased slack. As such, our normal demand-side monetary policy may not be able to ameliorate an AI-caused unemployment spell without also increasing inflationary pressure,” Cook was cited by Reuters as saying. “Monetary policymakers would face tradeoffs between unemployment and inflation. … Education, workforce, and other policy that is non-monetary may be better suited to address these challenges in a more targeted way.“She also highlighted uncertainty around how AI investment could influence the neutral rate of interest. A near-term surge in spending on the technology might push that rate higher — potentially requiring tighter monetary policy — but over time it could fall if the benefits of AI disproportionately accrue to higher-income groups or widen income inequality.Cook’s comments highlight the ongoing discussion within the Federal Reserve over AI’s economic implications. While some policymakers see scope for productivity gains to support lower interest rates, others are increasingly focused on potential labour market disruption and the possibility that the current wave of AI investment could add to inflation pressures in the short run.