AI Revolution Likely Won’t Take Jobs but Could Keep Interest Rates High

AI stands to boost productivity and economic growth while also potentially helping keep interest rates high in the coming years.

Key Takeaways

  • AI spending could boost GDP by 0.5% to 1% in the coming years, according to a report by Wells Fargo.
  • Spending on hardware and software related to AI could increase 50% over the next four years, which likely would also help keep interest rates high. 
  • The report found concerns over job losses could be overstated, but “white collar” jobs are the most threatened.

While the emerging technology of AI could have oversized impacts on some jobs and fields, it may also serve to improve the output of others while creating new roles that as of now can only be imagined, according to a four-part report from Wells Fargo Economics.

“AI may create new classes of occupations that are difficult to imagine now,” Wells Fargo Chief Economist Jay Bryson and others wrote in an analysis. “The productivity-boosting effects of AI should lift aggregate real income, which should increase the demand for all types of goods and services, thereby increasing employment in those sectors.”

AI Spending Stands To Boost Productivity, GDP and Interest Rates, Too

While the impact AI will have on the job market is uncertain, the report said what is clear is a surge in software and hardware spending on AI will likely help prop up the U.S. gross domestic product (GDP). 

The report looked at the investment that came alongside the Dotcom Bubble, finding that with the economic growth came a period of higher interest rates. If investment in AI technology were to follow the path of the 90s tech boom, spending could grow roughly 50% above its trend within four years. 

“Such exponential growth in capex has clear implications for GDP growth,” the Wells Fargo economists wrote. 

With hardware and software representing about 0.2% of GDP growth over the past two decades, the Wells Fargo report estimates AI spending could add approximately three times that amount to GDP growth over the next four years.

“A tech-like spending boom on generative AI could boost the rate of U.S. economic growth by a half to a full percentage point per year,” the report concluded.

However, as the U.S. economy grows with increased AI-tech-related spending, it’s likely that higher interest rates will come with that. From 1995 through 1999, the federal funds rate averaged 3.7% and remained high until an economic recession in 2001, the report noted. The federal funds rate is now at a 22-year high of 5.25% to 5.5%

“A higher rate of potential GDP growth would lead to an environment of higher real interest rate,” it said. “But higher real rates are not necessarily detrimental, especially if the driver is faster potential GDP growth.”

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