By Martin Baccardax

Around a hundred years ago, the Academy Award for Title Writing, the text used in silent movies, was presented for the first and last time. By then, the adaptation of sound had washed over Hollywood, changing the way everyone had thought about filmmaking for the past four decades.

Artificial intelligence is the equivalent of the "talkie era" for the global economy. Its arrival is likely to have similarly significant implications for inflation, its principal preoccupation.

Inflation, and fear of the devastation it can bring, has worried the world of finance worldwide for decades, forcing economists and policymakers to focus on vast amounts of government spending, tight labor markets, and ever-increasing energy prices.

It won't be long, however, before AI's broader adoption brings changes on all three fronts. The ways we think about inflation, monetary policy, and the Federal Reserve itself are likely to change as well.

Amazon.com CEO Andy Jassy, in fact, hinted at the effect AI will have on labor markets in a blog post this week. America's second-largest employer, he said, won't need as many people over the next few years.

That means they won't need to pay the people they do hire nearly as much, in aggregate. That is likely to echo down the employment chain as the billions of dollars, and soon to be trillions, in current AI investment are translated into the real economy.

Tesla is talking about a wave of humanoid robots for domestic use, with fully automated factories churning out self-driving cars. Even factoring in CEO Elon Musk's predilection for bombast, that is a future all of us can at least imagine over the next decade.

And while Musk may have failed in his attempt to rip trillions out of the federal government budget, a more thoughtful application of generative AI over the public purse may well make strides in reining in the "waste, fraud, and abuse" that deficit hawks have been pursuing.

The energy needed to power these enormous AI rollouts, as well as to keep vast data centers humming long after, is unlikely to come from traditional fossil fuels, either. Tech billionaires like certainty, and the vagaries of global oil markets look far less attractive than the predictability of nuclear energy.

Meta Platforms' Mark Zuckerberg would attest to that. The Facebook parent unveiled a 20-year lease agreement with Constellation Energy for a nuclear plant in Illinois earlier this month.

Robots don't need raises, reactors aren't affected by moves in the oil market, and governments may not need to spend nearly as much to keep everyone happy in an increasingly digital world.

So, that is goodbye to inflation, right? Maybe. But not necessarily higher interest rates.

The Fed will unveil its latest growth and inflation forecasts alongside its regular policy decision on Wednesday. Chairman Jerome Powell will follow with a press conference. Both will have, of course, a significant amount of near-term influence on global markets.

That contrasts with when the U.S. was an industrial powerhouse. Although Fed Chair Paul Volcker did rattle the economy when inflation forced him to lift rates as high as 20% in 1981, the U.S. was generally far less sensitive to monetary policy when businesses' main focus was making things, as opposed to borrowing and lending.

Press releases announcing decisions didn't exist before 1994. The U.S.'s transition to a financial economy, dominated by banks and services, placed the Fed at center stage.

So could AI, and the deflationary forces it is set to unleash in the transition to a tech-dominated economy, have a similarly significant effect?

Harvard economist Ken Rogoff isn't so sure. He told the Dwarkesh Podcast last week that AI energy needs, and the changing focus of capital from hiring to investment, could demand higher interest rates.

Fed Gov. Michael Barr said much the same thing in a speech to the central bank of Iceland last month. AI productivity boosts will raise neutral interest rates, he said, even if inflation steadies.

"When that happens, a higher real interest rate would be required to deliver any desired monetary policy stance," he said.

Old-economy inflation may ultimately fade to black, as they say in Hollywood, but one thing seems certain. The Fed won't be ushered offstage as the Title Writers were.

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 18, 2025 12:35 ET (16:35 GMT)

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