Kevin Warsh, Federal Reserve Chair, indicated Friday that the emergence of artificial intelligence will likely shake the economy, causing a temporary demand disruption before a later expansion in supply.
AI’s Economic Trajectory Described as ‘Very Bumpy’
At the International Monetary Fund’s annual gathering in Bangkok, Warsh stated the rise of this technology represents “probably the most consequential change to the U.S. and the global economy in my lifetime.”
He noted AI will alter the real economy, yet the journey from today to that anticipated state will likely involve “a very bumpy one.”
According to Warsh, AI is “obviously hitting the demand side of the economy before it’s going to hit the supply side of the economy,” predicting a supply shock in the medium term and “a huge benefit to the global economy, to the U.S. economy.”
Hyperscalers Driving Demand Surge
A demand surge has affected the U.S. economy for several months as major tech firms accelerate efforts to secure electricity supply, cooling systems, server hardware, advanced semiconductors and other capital goods critical to the AI buildup.
Columbia University professor Stijn Van Nieuwerburgh projects U.S. AI investments from 2025 to 2032 will reach $10.3 trillion, averaging 3.63% of GDP annually.
In the past two years, hyperscalers’ share of investment-grade bond issuance has grown over tenfold—from under 1% to 10% and rising, Georgieva stated. Since mid-September, their borrowing activity has pushed the 10-year Treasury yield beyond 5%, raising costs for consumers and businesses.
While acknowledging risks, Warsh voiced confidence AI will ultimately benefit the global economy. “It’s an exciting development,” he remarked, adding, “I think a decade from now they’ll look back and say, ‘This was hugely consequential.'”
Gartner’s Wednesday report warns over $3.5 trillion in AI infrastructure spending could become impaired by 2030 if current spending patterns persist.
“Our research indicates that enterprise and consumer AI revenue will be insufficient to support profitable returns on all planned AI capital expenditures” between 2027 and 2030, Gartner Senior Director Analyst Will Sommer stated.
