Michael S Barr: Artificial intelligence and the labor market - a scenario-based approach
Remarks by Mr Michael S Barr, Vice Chair for Supervision of the Board of Governors of the Federal Reserve System, at the Reykjavík Economic Conference, organised by the Center for International Macroeconomics at Northwestern University and the Central Bank of Iceland, Reykjavík, 9 May 2025.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Thank you for the opportunity to speak to you today. In my remarks, I would like to address a key question facing economists, policymakers, and people all over the world: How will artificial intelligence, particularly generative artificial intelligence, or GenAI, affect workers and the labor market in the years ahead?
Before I turn to that issue, I'd like to touch on a topic that I expect is also of interest: the outlook for the U.S. economy and the implications for monetary policy.
The U.S. economy entered this quarter in a relatively strong position: The unemployment rate has been low and stable, and the disinflationary process has continued on a gradual, albeit uneven, path towards our 2 percent objective. Private domestic final purchases have been solid. Overall, the economy has been resilient.
Against that backdrop, the outlook has been clouded by trade policies that have led to an increase in uncertainty, contributing to declines in measures of consumer and business sentiment. I expect tariffs to lead to higher inflation in the United States and lower growth both in the United States and abroad starting later this year.
In my view, higher tariffs could lead to disruption to global supply chains and create persistent upward pressure on inflation. Faced with substantial tariffs, businesses will likely change how they source intermediate inputs, and it will take time and investment for them to reroute their distribution networks. Conversely, global trade networks may change rapidly, and some suppliers may not be able to adapt quickly enough to survive these changes. This concern is particularly acute for small businesses, which are less diversified, less able to access credit, and hence more vulnerable to adverse shocks. Small businesses play a vital role in production networks, often providing specialized inputs that can't easily be sourced elsewhere, and business failures could further disrupt supply chains. As we saw during the pandemic, such disruptions can have large and lasting effects on prices, as well as output.