Federal Reserve Chairman Kevin Warsh told the Senate Banking Committee on Wednesday, 16 July that the United States is experiencing the largest wave of business investment in a generation, fuelled primarily by artificial intelligence (AI), and predicted the technology would ultimately create jobs, lift productivity, and reinforce the American economy — even as it causes short-term disruption.

Warsh's Opening Case for AI

Appearing before the committee for his first semiannual monetary policy hearing since taking office seven weeks ago, Warsh positioned AI as a structural economic opportunity rather than a labour market threat. 'I can't think of a more consequential change to the US and global economy in my adult lifetime than the surge of investment and the potential in and around AI,' he told lawmakers.

He argued that AI's impact would touch both pillars of the Fed's dual mandate — stable prices and maximum employment — making it a central concern for monetary policymakers going forward.

The Investment Boom Driving the Economy

Warsh identified business investment in AI infrastructure, data centres, and related equipment as the most striking feature of the current US economy. He noted that high-tech investment grew roughly 25 per cent in the first quarter, driven by surging demand for AI-related hardware and software.

'The rapid pace of CapEx reflects in large part the construction of infrastructure, including in and around AI and the immense demand for AI-related equipment and software,' he said. 'What is now called AI investment will soon just be called investment.'

On Jobs: Disruption Now, Creation Later

Warsh acknowledged that AI would be disruptive in the near term but firmly rejected the notion of catastrophic, permanent job destruction. 'My best guess is that this will improve American productivity and will improve the real wages, and will help us on full employment,' he said, while conceding that the transition period could place some workers' livelihoods at risk.

When pressed on whether AI could eliminate jobs at a catastrophic scale, Warsh replied: 'Over the long term absolutely not. I believe that this is a long-term job creator. But will it be disruptive, and will some people have their jobs at jeopardy because of the new technologies? On that, I can't offer any sort of guarantee or comfort.'

Fed's Internal AI Task Force

Warsh revealed that the Federal Reserve has established one of five new internal task forces specifically to study AI's effects on productivity, employment, and inflation. The groups have been given six months to deliver recommendations, with early findings potentially reaching policymakers as soon as September.

He was careful to clarify that the task force serves an advisory function. 'We haven't outsourced this decision,' he said. 'You're talking to one of the deciders.' The Federal Open Market Committee (FOMC) will retain final authority over monetary policy after reviewing the task force's input.

US Positioned to Lead the Global AI Race

Warsh expressed confidence that the United States holds a structural advantage in the global AI competition. 'I think the United States is extremely well positioned to be at the cutting edge and extract more productivity than any other country in the world,' he said. 'The United States will be a winner.'

The broader AI investment boom — with technology companies committing hundreds of billions of dollars to data centres, semiconductor manufacturing, and advanced computing — has become a key driver of US economic growth, while simultaneously raising questions about electricity demand, labour market disruption, and inflationary pressure. How the Fed navigates those competing forces will be closely watched in the months ahead.