Sharp spikes in uncertainty about AI technology make it harder for the Federal Reserve to control inflation through interest rate hikes.
April 25, 2026
Original Paper
AI Uncertainty and the Muting of Monetary Policy Transmission: Evidence from the United States
SSRN · 6619300
The Takeaway
The rapid and unpredictable development of AI acts as a buffer that dampens the effect of monetary policy. When businesses and consumers are uncertain about the future of technology, they react less predictably to changes in the cost of borrowing. This friction means the central bank has less power to cool down a hot economy. Traditional economic models do not account for how a technological revolution can mute the tools of national finance. The sheer speed of AI progress creates a level of noise that drowns out the signals sent by the Fed. Managing an economy now requires understanding technological chaos as much as interest rates.
From the abstract
This paper documents a structural friction in United States monetary policy transmission generated by abrupt escalations in uncertainty about artificial intelligence. Using state-dependent local projections, we estimate the interaction between high-frequency federal funds rate surprises in the FOMC statement window and turning points in AI uncertainty, constructed as the second difference of the log AI Uncertainty index. The state variable isolates abrupt accelerations in AI discourse and is emp