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20.09.2024 12:21BoC's Macklem: AI could destroy more jobs than it creates
Bank of Canada Governor Tiff Macklem said on Friday that the adoption of artificial intelligence (AI) could add to inflationary pressures in the near term, per Reuters.
Key takeaways
"AI, combined with a more shock-prone world, means inflation could be more volatile than it was in the 25 years before the pandemic."
"Central banks need to be closely attuned to how AI is affecting inflation, both indirectly and directly."
"AI is expected to boost productivity; when labor productivity is rising, the economy can grow more quickly without causing inflation."
"AI could destroy more jobs than it creates, and people may struggle to find new opportunities; this is a concern for us all."
"We don’t have much evidence that labor is being displaced by AI at rates that would lead to declines in total employment."
"AI adoption could also lead to financial stability issues; operational risks could become concentrated in a few third-party service providers."
"There is huge potential for central banks to use AI to understand how consumers and businesses are behaving."
Market reaction
These comments failed to trigger a noticeable market reaction. At the time of press, USD/CAD was virtually unchanged on the day at 1.3565.
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12.08.2024 14:36The USD and the AI hype – Commerzvank
The US Dollar (USD) has weakened since the US labor market report was published a week ago, but only moderately. The period since the labor market report is shaded gray. It can be seen that the US currency is only as weak as it was at the beginning of June, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.
Only a slightly higher risk of a US recession
“I conclude that the currency market is by no means excessively pricing in a US recession. My fellow economists recently wrote that they still do not believe in a US recession. However, they also admit that there are new warning signs. A functioning currency market must therefore price in a higher, but only slightly higher risk of a US recession. It has done so, no more and no less.”
“In my opinion, it has even tended to price in too little. I have probably said it too often: a US recession would probably not only have a negative effect on the USD because the Fed would then lower its key interest rate. It would also damage the image of US exceptionalism: the idea that the US economy is growing faster than other developed industrialized countries for a deep, structural reason and that capital invested there is therefore more profitable than elsewhere.”
“Because in such a concept the USD is the ticket to this attractive capital market, it is particularly expensive. If, for example, the AI hype was just a bubble that is now bursting, part of this story may become implausible. Just as the strength of the US dollar crumbled when the dot-com bubble burst in the early 2000s.”
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25.07.2024 10:24USD: The AI hangover and the exchange rates – Commerzbank
Strong US growth has a positive effect on the US Dollar (USD) via two channels: It allows the Fed to pursue a more restrictive monetary policy for longer, and to pay more attention to inflationary trends than it would if growth were weak. It makes investments in the USA particularly profitable and increases the value of the currency needed to make these investments: the USD, Commerzbank FX strategist Ulrich Leuchtmann notes.
US GDP figures may affect the Greenback
“I wonder whether it was only the previous US growth advantage that fueled the Greenback, or whether hopes of fantastic profits in the tech industry also resonated. There is always some story that justifies speculative exuberance. Now, it’s the ‘at the moment, that AI will take over people's mental (including creative) work in the near future’ stance.”
“Such things only appear to be a bubble in retrospect, not in the middle of it. If the USD grows because of the AI hopes, the USD is probably as fragile or stable at its current level as the AI boom is. But I’d remind the pessimists of the following: the dotcom bubble also went hand in hand with a strong US dollar.”
“So far, the USD has not suffered from the correction in tech stocks. Coincidentally, the US GDP figures for the second quarter of 2024 are being released today. After +1.4% in the first quarter, the median of analysts is now expecting +2.0%. If these expectations are disappointed, even those USD bulls who have liked the Greenback so far due to the actual growth advantage would be disappointed.”
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