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Fed's Goolsbee says oil shock could exacerbate inflationary impulse of AI hype
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Fed's Goolsbee says oil shock could exacerbate inflationary impulse of AI hype
May 27, 2026 7:46 PM

May 28 (Reuters) - Chicago Federal Reserve President Austan Goolsbee on Thursday amped up his warning that mounting expectations for the productivity-boosting potential of AI could send inflation higher and force the Fed and other central banks to raise interest rates.

"The bigger the hype about future productivity, the more rates may need to rise to prevent overheating," Goolsbee said in a summary of remarks prepared for delivery at a Bank of Japan conference. "And, importantly, facing a supply shock in the near term - whether from oil prices, disruptions to the supply chain, or other factors - makes the problem worse."

The remarks build on a thesis Goolsbee first publicly aired earlier this month pushing back against the idea that AI is a disinflationary force that could give the central bank room to cut rates, a view embraced by many in the Trump administration and by Kevin Warsh, the Fed's new chair. 

In the 1990s, unexpected productivity gains from broader adoption of computers supercharged U.S. economic growth without sparking inflation.  

It's different, Goolsbee argues, if the productivity gains are expected. If so, they can set off an anticipatory spending spree that pushes prices upward before the actual productivity gains are realized. 

"In that case, rates would likely need to rise," Goolsbee said. "This could affect other countries, too, as the productivity gains or expected gains spread with the new technology across borders." 

Potentially making matters worse, Goolsbee suggested on Thursday, is the recent rise in oil prices from the Iran war that he worries is feeding into inflation more broadly.

While supply shocks typically limit economic growth, which would tend to curb inflation, "they also make the problem of inflation from anticipated future productivity growth more extreme," Goolsbee said on Thursday, without elaborating. 

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