Several Federal Reserve officials have recently indicated that artificial intelligence (AI)-driven productivity growth may exert upward pressure on interest rates. This view contrasts with that of the Trump administration and its nominee for the next Fed chair.

Fed Governor Michael Barr stated in prepared remarks for a speech in New York on Tuesday, "I do not expect an AI boom is likely to be a reason to lower the policy rate."

Vice Chair Philip Jefferson also noted in a speech on February 6 that, "all else equal, sustained faster productivity growth would likely lead to a higher neutral rate of interest, at least for a time."

As President Trump continues to pressure the Fed to cut rates, AI and productivity are likely to become focal points in this year's interest rate discussions. The Fed cut its benchmark rate three times in 2025 and held rates steady at its January policy meeting. Money market pricing indicates investors currently do not expect rate cuts to resume before mid-year.

Trump has nominated Kevin Warsh to succeed Jerome Powell as Fed chair when Powell's term ends in May. Warsh shares the view of Trump administration officials that AI could fuel a productivity boom, supporting non-inflationary growth and creating room for lower interest rates.

In his Tuesday speech, Barr listed several reasons why this outcome is not certain. He noted that AI adoption requires larger corporate investments, which would increase capital demand and put upward pressure on rates. At the same time, households may reduce savings due to expectations of stronger real wage growth and higher lifetime earnings, also adding upward pressure on rates.

After raising rates by more than 5 percentage points cumulatively in 2022 and 2023, the Fed has cut rates by 1.75 percentage points over the past year and a half. The current benchmark rate stands in the 3.5% to 3.75% range. Several officials believe rates are nearing a neutral level and have used this as justification to support slowing or even halting further cuts.

San Francisco Fed President Mary Daly told reporters after an event in San Jose, California, later on Tuesday that in a "standard model," AI-induced productivity acceleration would lead to a higher neutral rate because "investment demand rises relative to the supply of savings." However, she emphasized that such analysis is not conclusive and cautioned that the impact of AI on the neutral rate should be viewed carefully.