A series of forces designed to bring outside thinking to the Federal Reserve will include “good minds,” Chairman Kevin Warsh said Thursday. In the working group that may have the most impact on the Fed’s economic management — artificial intelligence — those outside minds seem to be leaning in the same direction.
Members of Warsh’s AI team all seem to believe that AI will be a transformative technology, with far-reaching effects on growth and productivity. That is consistent with Warsh’s views. He personally selected the team members.
The AI team was one of five the Fed released on Thursday. Its official charge is to “assess the economic impact of new general-purpose technologies, including artificial intelligence, to inform the Federal Reserve’s policy judgments.” It will be led by three outside advisors: venture capitalist Marc Andreessen, economist Charles I. Jones, and Xbox CEO Asha Sharma.
All have recently spoken or written in glowing terms about the effects of AI on the economy.
The Fed chairman is a long-time supporter of AI’s potential to transform the economy. Its adoption is “probably the most significant change in the economy and businesses and households that we’ve had in my adult life,” Warsh said in June at his first press conference as chairman.
He said that by 2025, he believes that the development of AI will be the reason for the Fed to lower interest rates, because it will help the economy to grow faster without increasing inflation.
Venture capitalist Marc Andreessen speaks at the TechCrunch Disrupt conference in San Francisco, September 13, 2016.
San Francisco Chronicle/Hearst Newspapers Via Getty Images | Hearst Newspapers | Getty Images
Warsh has been personal friends with Andreessen for decades. Warsh also ran a venture-capital investment for investor Stanley Druckenmiller after his tenure at the Fed ended in 2011. That expanded his Silicon Valley network — and his wealth.
Andreessen made his fortune by creating some of the first web browsers and is now one of the most outspoken evangelists for AI. “We’ve turned sand into thought,” Andreessen told host Joe Rogan in May, referring to the silicon that underlies AI chips.
Jones, an economist, shares much of Andreessen’s optimism on the West Coast. Jones recently took a leave of absence from Stanford University to join the Anthropic Institute, which is part of the leading AI company Anthropic. Jones’ academic work has recently focused on the effects of AI on economic growth, making him a key voice in Warsh’s efforts to bring the Fed into his sights.
Jones noted in a recent paper that US growth per capita has averaged 2% over most of US history. “Nevertheless, if AI ends up removing almost all the weak links in the economy, economic growth could be very rapid, at rates that may exceed 5 percent per year,” he wrote.
The paper analyzes what Jones identifies as weak links – aspects of the economy that would be difficult to automate – and considers possible low growth rates. But Jones writes unequivocally that AI “will likely be the most transformative technology of the modern era.”
Sharma, who became CEO in February MicrosoftThe Xbox games business, has made strong statements in support of AI. But as an active business leader, he made the unusual decision not to prioritize AI. As Microsoft integrates AI into every aspect of its products, Sharma chose not to prioritize it and focus on Xbox, he said in a recent interview with Bloomberg.
“Our console players are not happy about that,” Sharma said.
But that does not make him a skeptic. “Now, do I believe in AI? Absolutely,” he said.
Three members of the task force did not immediately respond to a request for comment. The Fed declined to comment.
Where Warsh may run into skeptics is at the Federal Open Market Committee, which has the power to set interest rates. FOMC members debated at their June meeting the question of whether AI could lift productivity, minutes of the discussion released this week show. Some FOMC participants bought into the idea that manufacturing would accelerate, the minutes said.
However, they were not fully sold. “These stakeholders noted, however, that significant uncertainty remained regarding the timing and magnitude of potential productivity gains, which were expected to slow the continued growth of AI adoption by demand.”
Meanwhile, US tech firms embracing AI are starting to heat up the economy. New York Fed President John Williams on Thursday said he is concerned about rising prices for electricity and semiconductors from the AI boom.
Prices have gone up “like a hockey stick,” with some parts doubling and tripling, Williams said. AI is a “demand shock,” he said, adding that it’s unclear whether supply will grow alongside it, which would be needed to curb inflation.
The Fed meets again at the end of July, when it is expected to hold interest rates steady. These groups are expected to complete their work by the end of the year.
