Northern Trust says AI could help lower inflation and urges Fed caution

In short: Northern Trust’s top asset manager says wider use of AI could lower inflation, and he wants the Federal Reserve to wait and see before changing interest rates.

What's going on

Mike Hunstad, who runs Northern Trust’s $1.4 trillion asset management unit, told the Financial Times that advances in artificial intelligence could be “massively disinflationary.” Disinflationary means price increases slow down, and prices can even fall if supply grows faster than demand.

Hunstad said many companies expect AI to help them work more efficiently. He argued that if even some of those gains show up across the whole economy, it could create a major “positive supply shock.” That is when the economy can produce more goods and services than before, like adding extra lanes to a busy highway so traffic moves faster.

He also warned that AI could make the economy harder to predict. Because of that uncertainty, he urged the US central bank, the Federal Reserve, to hold interest rates steady until AI’s real effects are clearer.

The Fed has kept rates unchanged so far this year, after three quarter point cuts in 2025. Policymakers have been debating how to respond to inflation pressures linked to the war in Iran, while other forces are also affecting growth and prices.

What to watch

There is no agreement inside the Fed on what AI will do to inflation. Some, including Fed chair nominee Kevin Warsh, think AI will boost productivity enough to allow lower rates without pushing prices up. Others, such as vice-chair Philip Jefferson, point out that heavy spending on AI infrastructure like data centers can raise demand right away, while productivity benefits may take longer. The key question is which effect shows up first.

Source: Financial Times