The Federal Reserve is taking a closer look at the economic consequences of artificial intelligence as the technology’s rapid expansion increasingly creates both opportunities and risks for the U.S. economy. Fed Chair Kevin Warsh will convene a public forum in San Francisco on Monday to examine how AI could influence inflation, employment, productivity and financial stability as public concerns over the technology grow.

Fed Turns to AI at a Critical Economic Moment

The forum is the only scheduled public event among five task forces Warsh established earlier this year to examine issues considered important to the Federal Reserve. Its timing is significant: trillions of dollars are being directed toward data centers and related infrastructure, while the technology is simultaneously generating concerns about employment, inequality, financial markets and national security.

Warsh has previously described AI as a “hinge point in history”, reflecting expectations that the technology could significantly reshape the economy. Yet his assessment has become more nuanced since taking the Fed’s leadership in May, as the timing and scale of AI’s productivity benefits remain uncertain.

AI Investment Is Supporting Growth but Raising Prices

One of the central challenges for policymakers is that AI’s potential long-term effect on inflation differs from its current impact. Higher productivity could eventually reduce production costs and create greater economic capacity, potentially easing price pressures. In the short term, however, the enormous investment required to build AI infrastructure is contributing to stronger demand and higher prices.

Richmond Fed President Tom Barkin recently described the scale of AI investment as historic, comparing it with major infrastructure transformations such as railroads and interstate highways. He also warned that if such investment fails to generate expected returns and companies subsequently reduce spending, the economic consequences could be significant.

Employment Risks Become Harder to Ignore

Labor-market disruption has become another major focus. Fed Governor Lisa Cook has warned that AI could produce at least a temporary increase in unemployment and potentially raise the underlying level of joblessness. Governor Michael Barr similarly said the United States should prepare for serious short-term disruption depending on how quickly AI is deployed and whether businesses of different sizes can access the technology.

The potential impact ranges from broad productivity gains to a more difficult transition characterized by persistent underemployment. That uncertainty makes the pace of adoption particularly important for monetary policymakers attempting to assess employment and inflation conditions in real time.

Technology’s Broader Risks Enter the Policy Debate

Warsh’s task force includes technology and economics experts, including Marc Andreessen, who chairs the AI-focused group, Stanford economist Chad Jones and Microsoft’s Asha Sharma. Their discussions are expected to examine how AI deployment could affect productivity and jobs, while the wider forum will bring together stakeholders to consider the technology’s implications for the economy and labor market.

The debate now extends well beyond productivity. Concerns include local opposition to data-center construction, possible financial-market stress from increasingly complex AI financing structures, inequality and national-security risks. For the Fed, the critical question is whether AI ultimately delivers the productivity gains expected by its proponents and, importantly, when those gains become large enough to influence inflation and employment.

As the Fed evaluates the technology, markets will be watching for evidence that could change assumptions about the AI investment cycle and its economic consequences. The trajectory of data-center spending, productivity, wages and employment will be particularly important. How quickly AI transforms the real economy may determine whether the technology becomes a durable source of disinflationary growth or creates a more complicated transition for monetary policy.