Will the AI boom lead to lower interest rates?

June 10, 2026 — 12:11pm

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Kevin Warsh, who’s just chairing his first rate-setting meeting at the Federal Reserve Board, argues that the boom in artificial intelligence will allow significant cuts to US interest rates. His new colleagues, and plenty of others, aren’t so sure.

Warsh, appointed by Donald Trump with an expectation that he would try to deliver the rate cuts Trump has consistently, and insistently, demanded, has argued that AI will prove “structurally disinflationary” and that, instead of reacting to the data of the moment, the US central bank should make a forward-looking judgement that AI will lower the inflation rate.

He has argued that AI will unleash a productivity boom – “the most productivity-enhancing wave of our lifetimes” – that will enable non-inflationary growth and allow lower interest rates.

Other Fed officials beg to disagree.

The Fed’s vice chairman, Philip Jefferson, said earlier this year that “all other things being equal, persistent increases in productivity growth are likely to result in an increase in the neutral rate, at least temporarily.” (The neutral rate is the rate of interest that neither constrains nor stimulates growth, allowing the economy to expand while maximising growth with a stable inflation rate).

When the Fed concludes this week’s Federal Open Market Committee meeting, it is most unlikely that Trump will get the rate cut he so desperately wants.

Another Fed governor, Michael Barr, has also linked higher productivity growth with higher interest rates, saying AI was unlikely to be a reason to lower the Fed’s policy rate. Meanwhile, the San Francisco Fed president Mary Daly has said an AI-driven acceleration of productivity growth would dictate a higher neutral rate because the demand for investment would rise faster than the supply of savings.

There’s little debate over whether AI will lift productivity rates, but there’s significant disagreement among economists about how........

© Brisbane Times