Philadelphia Fed President Anna Paulson cautioned that excitement over AI has helped offset weakness in the economy and labor market.
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“But in the more immediate term, the relatively narrow base of support for the labor market, the importance of high-income consumers together with the prominence of the narrative around AI for equities, adds up to a relatively narrow base of support for growth over the next year or so,” said Paulson at the National Association for Business Economics Annual Meeting in Philadelphia.
AI Boom Hides Underlying Risks, Says Paulson
Paulson added that the stock market’s recent performance has been driven by just a few firms capitalizing on AI. This in turn has boosted spending from high-income earners, as the top 20% of households by income own over 85% of corporate equity. While Paulson believes that AI will be able to boost economic productivity, she also warns that the narrative could be getting ahead of itself.
“Indeed, some business contacts are wondering where future demand will come from. This is something to watch closely,” said Paulson. Paulson ultimately supports a cautious monetary policy stance, urging the Fed to consider both AI-driven developments and broader economic risks.
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