The Fed’s Plan To Restore Price Stability Relies On AI

Kevin Worsh appeared before Congress for semianual monetary policy hearings, with the cost of living and wage dynamics serving as central discussion points. Worsh acknowledged that inflation has exceeded the Fed's 2% target for 63 consecutive months, directly impacting real take-home pay. He emphasized that while nominal wages have increased since the pandemic stimulus period, real wages have remained flat or declined when adjusted for inflation, particularly affecting lower-income workers. Job switchers and higher-income earners have fared better than job stayers and lower-income workers in maintaining wage growth relative to inflation. The transcript highlights a critical disconnect: though people are receiving larger paychecks, rising energy prices and persistent inflation have eroded purchasing power. Worsh identified productivity as a key lever for future economic growth and wage increases. The Fed's recent report noted promising productivity trends, with Worsh framing AI as a potential productivity accelerant comparable to past positive technology shocks. However, this optimism is tempered by reality—historical productivity growth rates have not yet materialized at the levels Worsh and his advisors project. Worsh has personally selected three members for an AI task force: venture capitalist Mark Andre, economist Charles Jones (now at Anthropic), and Xbox CEO Asha Sharma—all notably pro-technology voices. Critics question the credibility of these advisors, given their financial interests in AI success. The underlying political context is significant: Worsh was appointed by Donald Trump with expectations that he would eventually support lower interest rates, with AI-driven productivity gains serving as the economic rationale for rate cuts. Yet even Worsh's Fed colleagues remain unconvinced by this productivity thesis, leaving uncertainty about whether the promised AI economic transformation will materialize.