Fed's Barr Casts Doubt on AI as Rate-Cutting Tool

Barr warns AI could be inflationary, disrupting the job market in the short term

Published on Feb. 19, 2026

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Federal Reserve governor Michael Barr said the boom in artificial intelligence is unlikely to be a reason for lowering policy rates, disputing the idea of AI as a productivity accelerator that puts the Fed on a rate-cutting path. Barr warned that AI could be inflationary and deeply disrupt the job market in the short term, though he believes its long-term impact will be "profoundly positive."

Why it matters

Barr's comments strike a different tone from Fed Chair nominee Kevin Warsh, who has said AI will usher in "the most productivity-enhancing wave of our lifetimes" and be "structurally disinflationary," allowing for lower interest rates. Barr's views on AI and inflation could influence the Fed's future policy decisions.

The details

Barr said he would like to see evidence that goods price inflation is "sustainably retreating" before considering reducing the policy rate further, provided labor market conditions remain stable. He joins other Fed officials in recent days who have said they want to see inflation slow before looking at cutting rates. Barr also warned that AI could impact the job market by leading to a "jobless boom" with rapid adoption automating many jobs.

  • On February 17, 2026, Federal Reserve governor Michael Barr made these comments in a speech at the New York Association for Business Economics.

The players

Michael Barr

A Federal Reserve governor who expressed skepticism about AI as a reason for lowering policy rates.

Kevin Warsh

The nominee for Federal Reserve Chair, who has said AI will be "structurally disinflationary" and allow for lower interest rates.

Austan Goolsbee

The president of the Chicago Federal Reserve, who said he would like to see further progress on inflation falling to the Fed's 2% target before supporting another rate cut.

Mary Daly

The president of the San Francisco Federal Reserve, who suggested the Fed should look past official data and be forward-looking when it comes to the impact of AI.

Alan Greenspan

The former Federal Reserve Chair, whose approach to monetary policy in the 1990s Daly invoked as a model for how the Fed should consider the impact of AI.

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What they’re saying

“I expect that the AI boom is unlikely to be a reason for lowering policy rates.”

— Michael Barr, Federal Reserve Governor (New York Association for Business Economics)

“The extent of disruption will depend in part on whether society undertakes the investments needed in new job creation, worker training, connecting workers to new jobs, and other efforts to mitigate adverse labor market effects.”

— Michael Barr, Federal Reserve Governor (New York Association for Business Economics)

“It is a reminder that monetary policy is a forward-looking business. We won't find all the answers in the aggregate data on productivity, the labor market, or inflation. Seeing developments before they fully emerge requires digging deeper, relying on disaggregated information that foreshadows transformation.”

— Mary Daly, President, San Francisco Federal Reserve (San Jose, California)

What’s next

The Fed will be closely watching economic data, including inflation and labor market conditions, to determine if and when it may be appropriate to cut interest rates further.

The takeaway

Barr's skepticism about AI as a reason to lower rates, coupled with his warnings about AI's potential inflationary and disruptive impacts on the job market, suggest the Fed may be more cautious about cutting rates in the near term despite the productivity potential of AI technology.