--- title: "Senior Fed Official: If AI Succeeds, Rates Will Rise; If It Fails, Stagflation Will Follow" type: "News" locale: "en" url: "https://longbridge.com/en/news/285825003.md" description: "Chicago Fed President Goolsbee warned at a Stanford Hoover Institution conference that widespread market expectations for AI-driven productivity could themselves push up interest rates and trigger stagflation if the technological dividends fail to materialize. He pointed out that when expectations are fully priced in, businesses and households may overdraft future consumption and investment, leading to an overheated economy" datetime: "2026-05-10T01:26:33.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/285825003.md) - [en](https://longbridge.com/en/news/285825003.md) - [zh-HK](https://longbridge.com/zh-HK/news/285825003.md) --- # Senior Fed Official: If AI Succeeds, Rates Will Rise; If It Fails, Stagflation Will Follow The Chicago Fed President questioned the narrative on AI productivity, challenging the logic behind rate cuts advocated by the Trump administration and the incoming Fed Chair. On Friday, Chicago Fed President Austan Goolsbee warned that **widespread expectations for artificial intelligence productivity alone could push up interest rates. If this technological revolution disappoints, the outcome could be even worse: stagflation.** Speaking at the annual monetary policy conference hosted by the Hoover Institution at Stanford University, Goolsbee stated, "The greater the hype, the greater the hidden risks." Citing survey data from the Chicago Fed, he noted that economists, tech industry professionals, and the general public all expect an additional one percentage point of productivity growth annually over the next decade. **These widespread expectations themselves pose a risk of Overheated Economy.** This stance challenges the "AI-driven rate cut" narrative strongly promoted by Warsh, who is set to succeed as Fed Chair, and the Trump administration. Reportedly, Warsh is expected to gain Senate approval on Monday to become the 17th Federal Reserve Chair. He has previously stated multiple times that AI will usher in "the most productive wave of our lifetime," characterizing it as a "structural disinflationary" factor, implying that the Fed therefore has more room to cut rates. U.S. Treasury Secretary Bessent also holds this view, comparing the current situation to "the budding stage of a productivity boom, not unlike the 1990s." ## Expectations Themselves Are a Risk Goolsbee's core argument is that the macroeconomic impact of productivity gains depends on whether they arrive as a "surprise" or are "already expected." He explained that when productivity improves beyond expectations, inflation falls, and interest rates can decline accordingly. **However, when the market has fully priced in technological dividends, as seen with the current AI enthusiasm widely reflected in financial markets and corporate balance sheets, households and businesses will rush to expand spending and investment before productivity actually materializes.** This behavior of "overdrawing the future" will cause the current economy to overheat, thereby pushing up interest rates. Citing the tech boom of the 1990s as an example, he pointed out that the Fed under then-Chairman Greenspan actually raised interest rates six consecutive times between 1999 and 2000 precisely to cope with the pressure caused by the premature release of demand driven by expected productivity. **Goolsbee stated that Warsh and others citing the 1990s analogy as a reason for rate cuts is "somewhat difficult for me to understand."** ## If AI Fails, the Risk of Stagflation Emerges When asked by former St. Louis Fed President James Bullard, "What happens if AI productivity expectations fall short?" Goolsbee offered a grimmer assessment. He stated that if the market continues to expect a boom and constantly overdrafts consumption and investment, but **the technological dividends ultimately fail to materialize, the economy will enter a recession against a backdrop of overheated demand and persistently high inflation.** He said: > You can easily get stagflation; this is not a bubble, this is fundamentals. **Goolsbee also listed several leading indicators he is monitoring**: > - **Housing prices** reflecting the wealth effect driving consumer spending; > - The **data center construction boom** raising land and chip costs, with spillovers affecting industries unrelated to AI; > - And **changes in the number of workers** exiting the labor force due to expectations of increased future wealth. ## Internal Disagreement: Other Voices Question This Logic Goolsbee's judgment is not without dissent. At the same forum, Fed Governor Waller rebutted his core argument. Waller stated that the wealth effect channel described by Goolsbee "has long existed in many models" but "has not consistently appeared" in actual data. **He added that if real-world factors such as households' difficulty in easily mortgaging future income or gradual adjustments in spending are incorporated into the model, this effect would be significantly weakened.** Steven Davis, a visiting scholar at the Atlanta Fed, raised doubts from another dimension. Citing recent analysis from the Atlanta Fed, he pointed out that **the mean of corporate AI investment spending is 14 times the median, indicating that this investment boom is highly concentrated among a few companies rather than being broadly diffused.** University of Chicago economist Luigi Zingales also presented another side. **A New York Fed survey shows that an increasing number of residents expect to lose their jobs due to AI, which could instead raise the savings rate rather than pulling forward consumption.** This points in the opposite direction to Goolsbee's concerns. 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