Key Points ▸ The Federal Open Market Committee (FOMC) has factored in sustained productivity growth when formulating economic projections. ▸ A May 2025 research paper from the National Bureau of Economic Research (NBER) suggests that in a scenario where AI technology matures fully and the economy achieves long-term "boundless growth," up to 23% of workers could face unemployment, while productivity could surge by 3 to 4 times. ▸ The FOMC projects the long-term target for the federal funds rate to stabilize around 3%, indicating a moderately accommodative monetary policy stance.
Members of the Federal Reserve’s rate-setting committee have acknowledged that the widespread adoption of AI technology has led them to incorporate productivity gains as a core variable in their economic forecasts.
During a December press conference, Fed Chair Jerome Powell addressed the issue, stating, "Historically, technological revolutions have ultimately led to more jobs, higher productivity, and rising incomes. The impact of AI remains to be seen."
Economists and investors believe generative AI tools, in particular, hold significant potential to enhance worker efficiency and reshape labor markets. NBER researchers note that these machine learning-based tools will continue to improve as adoption expands, thereby boosting workplace productivity.
Ping Wang, an economics professor at Washington University in St. Louis and co-author of "AI and Technological Unemployment," explained, "The core logic here is that AI can self-learn, while humans can refine how they use AI and tailor it to their needs. The resulting productivity gains could be enormous."
Wang and her co-author, Zhiya Huang, a senior economist at the Federal Reserve Bank of Richmond, modeled multiple AI development scenarios. In an optimistic "boundless growth" scenario, fully mature AI could displace 23% of workers while multiplying productivity by 3 to 4 times.
Wang added in an interview, "Over the next decade—a mid-term phase—annual productivity growth could average around 7%." However, she emphasized this is a theoretical projection and may not materialize.
AI’s potential disruption could challenge the Fed’s dual mandate, particularly its goal of maximum employment. The FOMC’s December projections suggest the federal funds rate will stabilize near 3% long-term. Economists at the Cleveland Fed estimate the neutral rate at around 3.7%, implying a moderately accommodative stance at 3%.
Some investors draw parallels between today’s data center boom and the 1990s internet infrastructure spending surge.
Dan Tolomay, CIO of Southern Trust, cautioned, "Elevated market valuations warrant greater caution about future returns."
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