Federal Reserve Bank of Chicago's President and CEO Austan Goolsbee said the U.S. economy remains stable, but the focus is on inflation while also being mindful of the AI hype.
Goolsbee said, "On the real side, we've been stable, now inching toward dangers of overheat, and on the inflation side, after a couple of years of strong progress, it stalled out and started getting worse." Goolsbee said he remains more focused on consumers and businesses than on sweeping predictions about AI's long-term impact, according to a report published by Fortune on Wednesday.
AI Investment Runs Hot
Goolsbee said the rapid expansion of AI data centers is creating pressure in other parts of the economy. Companies are competing for construction workers, heating and cooling equipment and other resources needed to build infrastructure.
He described data-center expansion as "very hot," while warning that he was concerned about potential economic overheating. Goolsbee noted that if the impact of data center build-outs spreads further through the economy - pushing up services inflation, for example - "that would make me more nervous."
In addition, Goolsbee noted that adoption of AI in some sectors has been so rapid that they're feeling the pinch, but he does not believe that the "low hiring rate is predominantly caused from AI." He said the U.S. labor market remains relatively stable and that broad-based consumer spending, rather than AI data centers, has been a major reason the economy has remained solid.
On Wednesday, Nvidia Corp.
At the same time, President Donald Trump has argued that data centers could eventually become a larger industry than oil and has urged states to encourage further development.
AI Hype vs. Productivity
Goolsbee said the economic impact of AI will depend partly on whether productivity gains arrive unexpectedly or become heavily anticipated before they materialize.
"If the productivity lands on us in an unexpected way, inflation goes down, and rates can go down," Goolsbee noted. He added that "But the more expected it is, and the bigger the hype ... it leads to just old-fashioned overheating in the short run, because equity values go up, and so the businesses launch massive capital investment in the here and now, people start spending out of their equity, well in the here and now, before the productivity bounty has arrived."
The Federal Reserve published a July research note examining publicly available indicators of the AI buildout. It found that industries with greater AI exposure have experienced stronger productivity growth, while trends across organizations with different levels of AI exposure have remained broadly consistent. The researchers said this was suggestive of productivity gains at individual businesses not yet translating into large aggregate gains.
That uncertainty is one reason Goolsbee is cautious about assuming AI will immediately transform the broader economy.
Consumers Remain Key
Goolsbee said attention has shifted heavily toward data centers, but he wants policymakers to focus again on consumer spending.
"The thing in my mind that has made the economy stable and growing" is continued consumer spending, Goolsbee said.
Official government data showed the Consumer Price Index increased 0.1% in July after falling 0.4% in June. Prices were 3.4% higher over the year through July, according to the Bureau of Labor Statistics.
Goolsbee also said that it is for the Federal Open Market Committee, or FOMC, to balance the risk of reacting to transitory supply shocks against the risk of enduring above-target inflation.
Goolsbee also highlighted consumer spending. He said, "The thing in my mind that has made the economy stable and growing - despite a series of pretty intense shocks ... is the unrelenting, continued consumer spending."
