Key insights
- White House economic advisor suggests increased productivity, driven by capital spending and AI, constitutes a supply shock that will alleviate inflationary pressures. This, according to Hassett, should enable the Federal Reserve to lower interest rates, particularly if Kevin Warsh becomes Fed chair. This forward guidance from the White House could influence market expectations for future Fed policy.
April 6 (Reuters) - White House economic adviser Kevin Hassett told CNBC on Monday that he believes a "supply shock" in the U.S. economy caused by capital spending and higher productivity from artificial intelligence will allow the Federal Reserve to lower interest rates.
"If we have a supply shock like we’re seeing because of all this capital spending ... AI increasing productivity, it puts downward, downward pressure on inflation, and that should take the pressure off the Fed. They should be able to lower rates," Hassett said.
Hassett said he expects interest rates will be lowered if Kevin Warsh, President Donald Trump’s nominee to become Federal Reserve chair, takes the position.