In brief
- Fed Chair Kevin Warsh will lead a November 16 forum on AI’s effects on inflation, productivity and employment.
- Spending on AI infrastructure could keep interest rates higher for longer, putting further pressure on Bitcoin.
- Bitcoin miners are also affected by AI as technology companies compete for electricity and data centers.
Federal Reserve Chair Kevin Warsh will hold a public forum Monday to consider whether artificial intelligence will curb inflation, push prices higher or replace American workers.
The November 16 conference in San Francisco will bring together technology executives, economists and employers to discuss how AI is changing the economy.
The findings could shape the Fed’s approach to interest rates, which are a major factor in Bitcoin’s price movements as investors decide whether to put money into risky assets or safer alternatives.
Warsh has said AI could help companies produce more goods and services at lower costs, easing inflation without requiring the Fed to keep borrowing costs high.
Some of his colleagues, however, see another concern: The AI boom is already driving up costs, while its promised productivity gains remain largely theoretical.
Building data centers takes enormous amounts of electricity, computer chips, construction materials and skilled workers. Competition among technology companies for these limited resources pushes prices up.
In September, Fed Governor Lisa Cook warned that AI investment was adding to inflationary pressure and delaying the central bank’s return to its 2% inflation target.
That creates a dilemma for the Fed.
If AI eventually enables businesses to produce more without increasing costs, inflation could ease, giving policymakers room to lower interest rates.
Lower rates generally make risky assets such as Bitcoin and tech stocks more attractive, since government bonds and savings accounts offer smaller returns and investors may seek higher gains elsewhere.
If AI spending keeps inflation elevated, however, the Fed could hold interest rates high or raise them further. Borrowing would become more expensive, interest-bearing assets more appealing, and money could flow out of speculative investments, including cryptocurrencies.
Bitcoin is already under pressure. The cryptocurrency fell below $69,000 Friday after stronger-than-expected inflation figures raised concerns about another Fed rate hike.
AI may have a more direct connection to the Bitcoin industry than many realize.
AI data centers and Bitcoin mining operations both require access to large amounts of electricity. As AI companies compete for power and infrastructure, miners face pressure to find affordable energy or consider more profitable alternatives.
Some miners are already leaving the business altogether. Hyperscale Data shut down mining operations at its Michigan facility in September to make room for an AI customer under a deal potentially worth more than $1.2 billion. The same has happened with other major names, including Coreweave, and with other former Ethereum miners from its proof-of-work era.
AI’s potential effects on employment add another complication.
On Thursday, Fed Governor Michael Barr warned of possible “serious short-term disruptions” as businesses increasingly use AI systems to replace tasks performed by people.
Widespread job losses could weaken consumer spending, slow economic growth and eventually increase pressure on the Fed to cut rates. But a weakening economy could also prompt investors to move away from Bitcoin as they seek to reduce risk.
Warsh acknowledged in August that AI represents “a new variable” for monetary policy.
The question now is whether AI’s economic benefits will arrive soon enough to outweigh the costs of building it.
Monday’s conference will not determine the Fed’s next interest-rate decision, scheduled for December 9. But it could provide clues about how policymakers view a technology boom that is increasingly affecting Wall Street and the crypto market.
