AI: not the inflation cheat code?
St. Louis Federal Reserve President Alberto Musalem basically hit the brakes on a very convenient investor fantasy: that artificial intelligence will crank up productivity so fast it takes the heat out of inflation. Nice theory. But if you’re the Fed, banking on a tech miracle to do your job is a little like planning a picnic because the weather app says “vibes.”
Why the market should care
His point matters because the Fed’s next move is all about how confident it is that inflation is truly under control. If policymakers think AI-driven productivity gains are still a maybe, they’re less likely to cut rates aggressively just because the future looks shiny and robotic.
That means:
- Higher-for-longer rates can stay in the conversation
- Rate-cut hopes may need to cool their jets
- Growth stocks and other duration-sensitive names could keep bouncing around every time a Fed speaker clears their throat
The bigger picture
This isn’t a panic headline. It’s more of a reminder that the Fed is not running monetary policy on a sci-fi screenplay. Until AI’s productivity boost shows up in the actual data — not just in PowerPoint decks and earnings-call buzzwords — central bankers are likely to stay cautious.
Big picture: the market loves a good productivity story, but the Fed still wants receipts.