Federal Reserve officials are incorporating expected gains in labor productivity from artificial intelligence into their outlook, a shift that could influence the path of growth, employment and interest rates. Chair Jerome Powell noted past tech waves have ultimately delivered higher incomes and more work, while researchers point to scenarios where AI could lift productivity three- to fourfold over decades and displace up to 23% of workers. The Fed’s latest projections show the policy rate settling near 3% in the long run, potentially below an estimated 3.7% neutral rate—a mildly accommodative stance if productivity accelerates. Investors draw parallels between today’s AI-driven data-center buildout and the 1990s capex surge, cautioning that stretched valuations could temper future returns.
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