A long-lasting boost to productivity growth from GenAI would lead to higher demand for capital and upward pressure on interest rates, implying a higher setting for the policy rate when the economy is at equilibrium (r*).
Source
Speech by Governor Barr on artificial intelligence and the labor marketOriginal Quote
demand for capital would rise because of the strong business investment required to take advantage of the technology, putting upward pressures on interest rates, and household savings could fall due to expectations of stronger real wage growth and thus higher lifetime earnings, also putting upward pressure on interest rates. All of this would imply a higher setting for the policy rate when the economy is at equilibrium, or what monetary economists call r*.
Outlook
NeutralHigher r* is a structural economic outcome reflecting greater growth expectations; it is neither clearly beneficial nor harmful to human welfare in aggregate.
Changes to equilibrium r* are structural and long-run in nature; inferred as beyond 5 years.
This is framed conditionally ('in the event that GenAI results in a long-lasting boost'), indicating moderate uncertainty.
Potential Data Sources for Validation
Fed or academic estimates of r* (e.g., Laubach-Williams model) over time; track trend in real long-term interest rates and Fed's own projections of long-run federal funds rate in FOMC SEP.
About the Author
Michael S. Barr is a Governor of the Federal Reserve Board of Governors — and former Vice Chair for Supervision (2022–2025) — who is also a professor of law and public policy at the University of Michigan on leave, and previously served as Assistant Secretary of the Treasury for Financial Institutions under President Obama and as a key architect of the Dodd–Frank Act.
Across 18 tracked claims, Michael S. Barr skews neutral.