Treasury Secretary Emphasizes AI's Economic Impact and Calls for Fed Action

In a recent interview with Fox Business, U.S. Treasury Secretary Scott Bessent emphasized the transformative potential of artificial intelligence (AI) on the American economy, projecting significant productivity gains by early 2026. He urged the Federal Reserve to incorporate AI's anticipated impact into its economic assessments to avoid underestimating its influence, drawing parallels to the internet's underestimated impact in the 1990s.

Bessent's remarks reflect the Trump administration's strong commitment to AI as a driver of economic growth. He suggested that lowering interest rates could further stimulate this growth amid AI advancements. However, he acknowledged that some studies question whether early AI applications are yielding substantial business returns, indicating that future economic metrics will be crucial in validating these optimistic projections.

Scott Bessent has served as the 79th U.S. Secretary of the Treasury since January 28, 2025, under President Donald Trump. Prior to his appointment, Bessent was a partner at Soros Fund Management and founded Key Square Group, a global macro investment firm. He played a significant role during the British Pound sterling crisis in 1992, contributing to a $1 billion profit on Black Wednesday. Bessent holds a Bachelor of Arts from Yale University and has been involved in various financial and governmental roles throughout his career.

The Federal Reserve has been actively assessing AI's potential impact on the economy. In a speech on September 26, 2024, Governor Lisa Cook highlighted AI's potential to provide a substantial boost to labor productivity growth, drawing parallels to past technological innovations like the steam engine and electricity. She noted that AI could enhance productivity across various industries and occupations, emphasizing the importance of understanding its implications for economic policy.

Additionally, in a speech on February 18, 2025, Vice Chair for Supervision Michael Barr discussed AI's role in the economy and financial stability. He referenced studies indicating that AI adoption could lead to significant productivity improvements, particularly in tasks requiring cognitive skills. Barr emphasized the need for careful consideration of AI's impact on labor markets and the broader economy.

AI is poised to increase productivity growth by enhancing efficiency in tasks requiring cognitive skills. Studies have shown that AI can lead to immediate productivity gains, especially among less experienced staff. For instance, customer support agents using AI assistants resolved 14% more customer issues per hour, with the most significant improvements observed among less experienced workers.

Furthermore, AI's impact on firm performance is notable. Companies adopting AI have experienced higher growth in sales, employment, and market valuations, primarily driven by increased product innovation. These effects have materialized over a horizon of one to two years, indicating AI's potential to spur innovation and future productivity growth.

The Federal Reserve faces a complex dilemma between supporting a struggling housing market and managing the booming AI sector. While the housing market shows signs of faltering, the AI industry is experiencing rapid capital expenditure growth. Lowering interest rates to aid housing risks accelerating inflation by fueling AI spending, while maintaining high rates could deepen housing market woes. The Trump administration advocates for rate cuts to revive housing, but analysts caution that lower rates could overheat the broader economy due to AI-related demands and continued federal deficits.

The integration of AI into the economy has significant social implications. While AI can boost productivity and create new employment opportunities, it also raises concerns about job displacement and the need for workforce reskilling. Ensuring that workers are equipped with the necessary skills to adapt to technological changes is crucial for mitigating potential negative impacts on employment.

Treasury Secretary Scott Bessent's emphasis on AI's transformative economic potential and his call for the Federal Reserve to incorporate AI's anticipated impact into its economic assessments highlight the need for proactive policy adjustments. As AI continues to evolve, its integration into economic forecasting and policy frameworks will be crucial in harnessing its benefits while mitigating potential challenges.