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Chicago Fed Chair Austan Goolsbee Warns of Exacerbated AI Inflationary Impact From Oil Crisis

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Speaking at the Bank of Japan Conference on Thursday, Chicago Federal Reserve President Austan Goolsbee warned that the recent rise in oil prices, resulting from Iran war, could exacerbate the inflationary impact of artificial intelligence.

"The bigger the hype about future productivity, the more rates may need to rise to prevent overheating," Goolsbee said, while adding that the current supply shock "makes the problem worse."

While supply shocks typically reduce economic growth, offering a breather for inflationary pressures, Goolsbee warned that "they also make the problem of inflation from anticipated future productivity growth more extreme," while pushing back against the notion of AI being a deflationary force.

In such a scenario, Goolsbee argued that "rates would likely need to rise," as the increased spending on AI, during a period of energy supply constraints, could overheat the economy, before the supposed productivity gains are realized.

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