The Fed is fixated on AI, but not ready to make a Greenspan-size bet

25/11/2025 06:04 AST

Like everyone else, policymakers at the Federal Reserve are increasingly obsessed with artificial intelligence and its promise of a turbocharged economy. They're just not ready to make a big call that the revolution is under way.

Analysts across the financial world are scouring data for signs AI is making the economy more productive - the holy grail of new technology. The last sustained boost of that kind was the 1990s internet boom. Back then it shaped Fed policy: Chair Alan Greenspan reckoned innovation would allow faster growth without triggering inflation, and used that argument to keep interest rates down.

Right now, US central bankers are in agreement that AI will be transformative - but essentially in "too early to tell" mode when it comes to how the effects will land. A more immediate concern is above-target inflation, leaving many policymakers opposed to rate cuts. Others put more weight on weak job markets and support further easing: AI's ability to replace workers is part of that case, but not front-and-centre.

Caution is par for the course, because technological leaps often take years to work their way through the economy and show up in data. But the Fed is under pressure at a pivotal time.

Chair Jerome Powell's term ends in six months. President Donald Trump says he'll pick a successor committed to lower borrowing costs. Treasury Secretary Scott Bessent, who's in charge of the selection process, says whoever gets the job should be open to making a Greenspan-style early call.

In the first half of 2026, "AI implementation is just really going to start biting in terms of productivity," Bessent told CNBC last month. "It would've been easy for Alan Greenspan to kill the internet boom, not be open to the idea that there was a productivity boom and slam on the brakes," he said - adding that the next Fed chief should have "an open mind" on the topic.

There are five names on Bessent's shortlist. In recent weeks four of them signalled they're receptive to his case.

Bloomberg