Fed’s Christopher Waller Talks Higher Yields, Inflation

SPEAKER_1 (0:00)

Now Christopher Waller, the Federal Reserve Governor, is currently speaking to our Saleha Mohsin here at Bloomberg New Economy Forum about monetary policy in the age of AI. So let's just listen in.

Saleha Mohsin (0:10)

It's so exciting to be here with Governor Waller. We both flew in from Washington DC to have a chat with you all in the present. One thing I've noticed is that, just like in Washington, if you walk around in Delhi, the big conversation is AI, which we are gonna continue talking about. Governor Waller, you have made a lot of comments in the last couple of years about the benefits of AI, including productivity boom, contributing to GDP growth, seeing living standards rise.

And that's all talking about the United States. I'd love to hear from you how you see the impact of AI in our economy go into the rest of the world, especially emerging markets like India.

Christopher Waller (0:52)

Yeah, I mean, the way I think about AI is, first, there are those who build the AI tools, the models.

Then there are those who supply all the inputs to build that. That would be data centers, chips, all that. And then third, that's the people who actually use the models. Now, clearly, when it comes to building the models, the US is the dominant country. China is there as well.

In terms of providing the inputs, a lot of that's Taiwan, South Korea, producing the inputs. Data centers, they're all over the world. They're not just located in the US. And then, of course, the users are anybody that wants to use it for work. Now, there's a very high correlation between GDP per capita and AI use in people's work. So, that's kind of one of the things that people I think I'm a little concerned about is it's not even across the world in terms of how AI is used. And that means it's going to have productivity differences if it's not actually used. So you'll see what potentially widening gaps in GDP per capita because of this. But I think it's an amazing technology. I really do think I'm not a pessimist. I don't believe AI is going to be the end of the human race in the next two years or anything like that. But it is a tool and even within the Federal Reserve, that's what I tell all of our employees.

We're going to train you to do this because we want you to be more productive. If I was going to replace you with AI, wouldn't waste one cent training you. That would be a waste of money. So it really is a tool that I expect all of our employees to use. So that's the basic global picture of how I think the whole AI world works. Europe, for example, doesn't produce much AI or inputs, but they're big users of it. And it's already kind of widely spread throughout the business sector and community.

Saleha Mohsin (2:52)

Let's talk about the payoffs. You say you're an optimist. You're not worried about the human race.

When are we going to see some of these benefits, the productivity boom, the increase in our wages, inflation being reined in, those things haven't really turned up for the everyday person.

Christopher Waller (3:11)

Right. It's often the case that when you have big technological changes, this is what economists know, is you don't typically see the productivity gains for years. A big part is firms have to figure out, what am I using this for? How am I going to actually increase productivity? They're not really sure, and so there's a lot of trial and error and a lot of experimentation. But then you start realizing where it really does have its impact. I mean, I'm telling you, if anybody does any coding, this stuff is amazing. I mean, it's just shocking how good it is. So, in terms of coding, yeah, I mean, if you were a coder, your job is going to be fundamentally changed. It doesn't mean you're going to lose your job. It's just you're going to do a different job than what you were doing before. Things that you couldn't do because you were too busy doing basic coding, you're going to be able to now expand what you're doing in terms of the production of your output. So, I think it's just going to be a while before firms start figuring out how to actually do this. And you may, look, you may not see it in terms of, this is one of the measurement things I've thought about.

Suppose I can do the same amount of work faster.

So, instead of five days, I get it done in three days. Maybe I take all that time and just go have more leisure. My output is not any higher per a given year. It's just I've got more time to consume my leisure and enjoy my life. That still means it's still good for welfare, even if you don't see a big increase in GDP per capita. So, you either have to rethink is it, do we measure GDP or productivity per unit of time, as opposed to quarterly, it's now down to like days. So, you have to think about that. Then just in terms of productivity, there's a lot of things this technology is just going to make your life better, even if it doesn't show up in your work productivity.