Fed must scrutinise AI’s productivity impact before adjusting rates, says Daly

The US Federal Reserve will need to dig deeper into the data to determine whether artificial intelligence is meaningfully lifting productivity and enabling faster, non-inflationary growth before making policy moves, San Francisco Fed President Mary Daly said on Tuesday.

Speaking at an event at San Jose State University hosted by the Silicon Valley Leadership Group, Daly said that while optimism around AI’s transformative potential is growing, macroeconomic studies so far show limited evidence of a significant, economy-wide productivity boost.

The Trump administration has argued that AI-driven investment is already strengthening growth prospects. Several economists have similarly suggested that rising capital spending in AI could replicate the 1990s technology boom, when rapid adoption of computers and software allowed the US economy to expand more quickly without triggering runaway inflation.

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However, Daly cautioned that it may be too early to see AI’s full impact in aggregate data. “Most macro-studies of productivity growth find limited evidence of a significant AI effect,” she noted, adding that broad-based economic transformations often take time to materialise.

The policy challenge for the Fed, she said, lies in determining whether stronger growth signals emerging inflationary pressures, which would warrant tighter monetary policy or reflects genuine productivity gains that can sustain expansion without stoking prices.

Drawing a parallel with former Fed Chair Alan Greenspan’s approach in the 1990s, Daly said policymakers must look beyond headline data. At the time, Greenspan resisted calls for preemptive rate hikes, arguing that official statistics understated productivity gains from technological investments—a judgment that ultimately proved correct.

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To assess whether AI is playing a similar role today, Daly said the central bank must examine sector-level trends, engage directly with businesses, and evaluate how innovation is shaping the broader economy.

“The willingness to confront what we know and what we don’t is essential to making appropriate and durable policy that serves all Americans,” she said.

Daly did not comment on her preferred near-term rate path. She has previously supported holding the federal funds rate steady in the 3.50 per cent to 3.75 per cent range, while acknowledging that there is also a case for easing policy to support a labour market where workers face limited job opportunities and wages pressured by inflation.