Chicago Fed's Goolsbee: Watch consumers, not AI hype

Goolsbee is pushing back against the dominant AI narrative by emphasizing traditional economic indicators. He contrasts the 'sparkling outlooks' from tech leaders like Nvidia's Jensen Huang, Tesla's Elon Musk, and Meta's Mark Zuckerberg with the Fed's 'grubby day job' of managing inflation and employment. His core argument is that the current economic expansion is driven by broad-based consumer spending, not AI investment, and that the AI boom carries risks of overheating.

He draws on the Solow Productivity Paradox, noting a July Fed study that found micro-level productivity gains from AI 'not adding up in aggregate.' This skepticism extends to past tech promises, mentioning autonomous vehicles and NFTs as examples that 'have not played out the way that they said.' However, he acknowledges that some sectors are 'feeling the pinch' from rapid AI adoption, but does not believe the low hiring rate is 'predominantly caused from AI.'

The main policy challenge, as Goolsbee frames it, is distinguishing between 'traaaaansitory' supply shocks and enduring inflation. He argues that since the pandemic, supply shocks are more persistent due to geopolitics and longer supply chain fixes. For the FOMC, this means balancing the risk of reacting to temporary shocks against the risk of allowing above-target inflation to persist, all while keeping a close watch on the consumer, who he sees as the backbone of economic stability.