WASHINGTON, Feb 24 (Reuters) - Artificial intelligence has triggered a generational shift in the U.S. labor market and could lead to a possible rise in the unemployment rate that the U.S. central bank may not be able to counter with lower interest rates, Federal Reserve Governor Lisa Cook said on Tuesday.
"We appear to be approaching the most significant reorganization of work in generations," Cook said in remarks prepared for delivery at a National Association for Business Economics conference, pointing to changes in computer coding occupations and the difficulties some workers face finding entry-level jobs as evidence that the transition has begun.
While AI will offer "new opportunities," she said, in the early stages "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 that situation, with underlying unemployment driven higher on a structural basis, the Fed would not be able to react without risking higher inflation, even as productivity rises.
"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," she said.
"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."
Among the other "profound" challenges for monetary policy, Cook said, is the possibility that an AI investment boom may raise the neutral rate of interest in the short run - a development that, all things equal, could imply the need for tighter monetary policy - but then lower it over time if the emerging AI economy leads to wider income inequality, or if gains from the technology are concentrated among the better off.
Her comments are part of an emerging debate at the Fed about how AI may reshape the economy. Though some officials have argued that improved productivity could allow lower interest rates, there are also emerging concerns about the impact on the unemployment rate, and how the ongoing AI investment boom could add to inflation at least in the short run.
Reporting by Howard Schneider; Editing by Paul Simao
