Fed May Still Lower Rates as AI Productivity Should Tame Inflation

(MENAFN) The US Federal Reserve may still have scope to reduce interest rates once the current energy-driven supply shock subsides, a senior White House economic official said Monday, pointing to productivity gains from artificial intelligence as a counterweight to inflation.

Speaking to media, Kevin Hassett, director of the White House National Economic Council, argued that accelerating productivity is generating "downward pressure on inflation" — a dynamic that should, in his view, ease the pressure on the Fed and create room for lower borrowing costs. He also indicated he expects rate relief to materialize under the leadership of Kevin Warsh, President Donald Trump's nominee to assume the Fed chairmanship, a transition scheduled for next month.

Hassett's remarks came despite persistently elevated oil prices driven by war-related supply disruptions, though he maintained the inflationary impact of energy costs would likely prove transitory once market conditions normalize.

The Fed last month held its benchmark federal funds rate steady at 3.5% to 3.75%, signaling it would continue monitoring incoming data and risk assessments before making any further policy adjustments.

Warsh, tapped to succeed current Fed Chair Jerome Powell — whose term expires in mid-May — brings prior experience as a member of the Federal Reserve Board of Governors from 2006 to 2011, a tenure that spanned the global financial crisis. He also represented the Fed at G20 forums and has worked extensively on international economic matters. His appointment requires Congressional approval.

Trump has been a persistent critic of Powell, and Warsh's anticipated arrival at the Fed's helm is widely seen as a pivot toward a more accommodative monetary stance.

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