Members of the Federal Reserve rate-setting committee say they are factoring increased labor productivity into their economic forecasts as artificial intelligence technology becomes more widely adopted.

Fed Chair Jerome Powell addressed this topic in his December news conference, saying that in past technology waves “there’s always been more work and higher productivity and incomes have risen. What will happen here? We’re going to have to see.”

Economists and investors say generative AI tools in particular have potential to increase worker productivity and shake up the labor market. Powered by machine learning, these tools may improve over time as more people use them to augment their work, according to researchers writing in the National Bureau of Economic Research. 

“This is because AI can learn. And human beings can also try to utilize AI more effectively, and train AI to suit each person. And the resulting productivity gain is huge,” said Ping Wang, a professor of economics at Washington University in St. Louis and co-author of “Artificial Intelligence and Technological Unemployment.” 

Wang and his co-author, Tsz-Nga Wong, a senior economist at the Federal Reserve Bank of Richmond, modeled various scenarios for AI’s development. In an “unbounded growth” scenario, in which the technology becomes fully developed over many decades, 23% of workers lose employment and labor productivity increases by as much as three to four times.

“Over the next decade which is more like an intermediate run, labor productivity will increase by about roughly 7% per year,” said Wang in an interview with CNBC. He noted that this is a hypothetical scenario that may not unfold.

The potential effects could affect the employment side of the Federal Reserve’s dual mandate. The Federal Open Market Committee in December forecasted a federal funds rate settling near 3% over the longer run. This may be a moderately accommodative posture relative to an estimated medium-run neutral interest rate at 3.7%, according to Cleveland Fed economists. 

Some investors see similarities between today’s rush to build data centers and a capital expenditures boom on network components in the 1990s.

“The fact that we see a run up in valuations makes us a little more cautious about future returns,” said Dan Tolomay, chief investment officer at Trust Company of the South in an interview with CNBC.

Watch the video to learn more about how AI affects the Fed’s economic outlook.

The U.S. government is considering laws to help society adapt to the introduction of artificial intelligence.

Early users of the technology are already seeing labor productivity gains. For example, Klarna, a buy now, pay later financial services provider, estimates that its AI assistant tool will increase its profit outcome by $40 million by the end of 2024.

“It basically does the job of 700 full-time agents,” Klarna CEO Sebastian Siemiatkowski said in an interview with CNBC. “It basically was capable of taking care of two-thirds of all the incoming errands that we have over chat.”

Klarna’s AI assistant tool is built on OpenAI’s systems, which power both ChatGPT and Sora — two products that have captured the attention of both the general public and Congress.

In 2023, members of Congress convened panels, private dinners, and learning sessions with high-profile tech executives including Sam Altman, CEO at OpenAI. The White House followed up by seeking commitment from 15 private industry leaders to help lawmakers understand the best way to identify risks and make use of the new technologies. The list includes some of the biggest players in the tech sector, alongside newcomers such as Anthropic and OpenAI.

The Senate Task Force on AI, established in 2019, has passed at least 15 bills into law that focus on research and risk assessment. But when compared with measures passed by the European Union in 2024, the U.S. regulatory environment appears to be relatively relaxed.

“The folks in Brussels, they come up with a lot of bureaucratic rules that make it harder for companies to innovate,” Erik Brynjolfsson, a senior fellow at Stanford Institute for Human-Centered AI, said in an interview with CNBC. “The entrepreneurial environment isn’t there the way it is in the United States.”

Economists have worried for years that artificial intelligence could sink job prospects for white-collar workers, similar to the effects globalization has had on blue-collar workers in the past. A study from the International Monetary Fund suggests that at least 60% of work in advanced economies would be exposed to changes that stem from the wide adoption of artificial intelligence.

In 2023, lawmakers in the New York State Assembly put forward a measure to limit the expected impact of tech-driven layoffs with robot taxes. The idea is to introduce a cost for companies that use technology to displace workers within the state. As of April 2024, the bill remains in committee with an uncertain future.

Many economists have said that robot taxes, if used at all, should be set at a relatively low level. In the U.S. both employers and employees face payroll taxes of 7.65% of income. But the optimal rate for a robot tax would be between 1% and 3.7%, according to researchers at the Massachusetts Institute of Technology.

“It’s good for us to have output and productivity. And so I’m not sure we want to tax those,” said Brynjolfsson. “Robots are part of what boost technological growth and give us that higher productivity.”

“There will be a time in the future where robots can do most of what humans currently do,” Brynjolfsson said. “We’re not there yet.”

Watch the video above to learn more about the U.S. government’s plan to regulate artificial intelligence.