Cook: AI's dual impact on economy and financial stability
Lisa D. Cook, a Member of the Federal Reserve Board of Governors, discussed the opportunities and risks of artificial intelligence for the economy and financial system. She also provided her latest economic outlook, emphasizing persistent inflation and a stable labor market.
Inflation pressures persist, rates on hold
Federal Reserve Governor Lisa D. Cook outlined an economic outlook featuring persistent inflation and a stable labor market.
The Personal Consumption Expenditures (PCE) price index rose 3.8 percent over the 12 months ending in April, with core PCE at 3.3 percent, both above the 2 percent target.
Cook cited gasoline prices and tariffs as drivers, noting their potential to embed into medium-term pricing.
She also highlighted over $1.5 trillion in AI-related data-center investments as a demand shock, already affecting prices for chips, equipment, and utilities.
The labor market, at 4.3 percent unemployment, appears balanced, though Cook sees elevated downside risks from geopolitical conflicts and potential AI-driven job displacement.
Despite this, she is optimistic about robust GDP growth, driven by AI's productivity boost.
Cook advocates holding rates steady, with risks tilted towards higher inflation, and is prepared to raise rates if disinflation does not resume as expected.
AI's promise for financial innovation
Governor Cook expressed optimism about AI's potential to boost productivity and innovation within the financial sector.
She noted the Fed's embrace of experimentation, including co-founding the EmergingTech Economic Research Network to share AI research.
Financial firms are adopting AI in compliance, call centers, and back-office operations, using it for novel analytics and updating legacy code.
AI tools are also enhancing cyber vulnerability scanning.
Cook highlighted opportunities for improved access to credit, more efficient capital allocation, and the development of customized financial products.
These advancements could provide retail investors with tools to identify trends and risks earlier, ultimately leading to increased economic activity and growth.
Innovation's double-edged sword
While AI stimulates economic growth, its rapid integration introduces significant risks to financial stability.
Advanced algorithmic trading, for instance, can foster correlated behavior and market concentration, creating new vulnerabilities.
Policymakers must therefore balance encouraging innovation with vigilant monitoring to contain these evolving risks and ensure systemic resilience.