Fed’s Jefferson: Timing Of AI Supply And Demand Impacts Is Critical For The Fed

* Current Policy Is Well Positioned To Respond Based On Incoming Data, The Evolving Outlook And The Balance Of Risks * Firmly Committed To Returning Inflation To The 2% Target, Consistent With The Dual Mandate * If Inflation Does Not Start Cooling, It Could Be Appropriate To Reconsider The Policy Stance To Ensure Price Stability * Monitoring Two Significant Developments: The Middle East Conflict And The Proliferation Of AI * Current Scenario Exemplifies A Policy Dilemma Where Dual Mandate Goals Are In Tension * Must Consider The Whole Economy When Setting Policy * Middle East Conflict Expected To Have Muted Effects On Demand As The US Is A Net Oil Exporter And The Economy Is Less Oil Intensive * Energy Shock Overlaps With Trade Policy Shock, With Near-Term Effects On Output And Prices * Quick Succession Of Shocks Risks Inflation Becoming Entrenched And Inflation Expectations Becoming Unanchored * AI Shock Likely To Have Persistent Effects On Supply And Demand * AI Could Exert Upward Pressure On Inflation If Demand From AI Buildout And Consumption Outpaces Productivity Gains * AI Could Exert Downward Pressure On Inflation If Productivity Benefits Reduce Production Costs Sooner