AI: inflation machine or productivity fairy?
At Jackson Hole, Bank of England Governor Andrew Bailey tossed out a very 2026-era question: is AI going to make inflation worse, or is it going to save us from it? His answer was the most central-banker answer possible — it depends.
The logic is pretty simple, which is rare for monetary policy:
- If AI pumps up demand before businesses get the productivity gains, prices could rise.
- If the supply-side benefits hit first, then AI could help cool inflation by making the economy more efficient.
In other words, AI is either the turbo button or the inflation gremlin. Fun.
The BOE wants its own playbook
Bailey also leaned into the idea that the Bank of England doesn’t need to copy-paste the Fed’s homework. He said the BOE will make its own rate decisions based on the UK backdrop, even if the Fed takes a different path.
That’s important because rate expectations move markets in a hurry. If the BOE stays more data-dependent and less synchronized with the Fed, sterling-sensitive assets, UK banks, and rate-sensitive stocks could all get their own little plot twist.
Why investors should care
The bigger takeaway is that central banks are still trying to figure out whether AI is a productivity boom or an inflation problem. If it’s the former, that’s good news for growth and margins. If it’s the latter, it could keep rates higher for longer — which is the kind of sentence that makes equity multiples sweat.
Big picture: AI isn’t just changing companies. It’s becoming a macro variable, and central bankers are openly admitting they don’t know which way it breaks yet.