Central banks are shifting their view on artificial intelligence, moving it from a long-horizon consideration to a critical factor influencing monetary policy. AI is now framed as a structural shift comparable to electrification or the internet, poised to reshape inflation, interest rates, and the very tools policymakers use.
The European Central Bank (ECB) has been proactive, integrating a machine learning model into its monetary policy analysis toolkit since late 2022. This model uses approximately 60 indicators to track inflation expectations and economic conditions, having successfully flagged upside risks to core inflation in 2025. The Bundesbank is also employing AI for improved analysis and support, including text-based assistants and AI-driven document analysis.
At the Federal Reserve, the focus is on the conceptual and urgent implications of AI. Officials are debating how AI affects core monetary policy trade-offs. Governor Christopher Waller noted AI's rapid adoption and its potential to boost productivity growth, which could support rising incomes without inflation. Vice Chair Philip Jefferson highlighted AI's dual effect: lowering production costs through productivity gains while potentially increasing input prices as firms scale up technology and data centers compete for resources.
Wall Street is divided on AI's economic impact. "Disinflation bulls" view AI as a positive supply shock leading to lower prices and rates. Conversely, "capex hawks" anticipate near-term inflation driven by a surge in investment, higher electricity prices, and increased yields before productivity benefits materialize. Economists point to rising electricity costs, partly due to data center demand, as a significant channel for AI-driven inflation. Goldman Sachs projects higher electricity costs to add to headline inflation in 2026 and 2027.
There is broad agreement that AI is substantial enough to compel central banks to reassess economic models. The key unresolved issue is timing: whether productivity gains will precede the investment boom. This sequencing will determine if central banks can cut rates without reigniting inflation.