By Kelsey Johnson and Ann Saphir
OTTAWA/SAN FRANCISCO (Reuters) – The widespread adoption of artificial intelligence, machine learning and other new technologies may be boosting potential output in ways that could take years to show up in the data, Bank of Canada Governor Stephen Poloz said on Thursday.
In the meantime, Poloz said, and in light of the potentially large number of people who could lose their jobs during the process, central bankers may just want to take a lesson from former U.S. Federal Reserve Chair Alan Greenspan.
Greenspan kept interest rates relatively steady in the 1990s despite a very strong economy because he believed a positive technology shock was boosting productivity, allowing faster growth without sparking inflation.
“There is a good possibility we will experience something similar,” Poloz said in remarks at a San Francisco Fed conference that were based on a paper released as he spoke.
If so, he said, the prescription would be to keep “monetary policy neutral while inflation stays subdued and allowing growth to run, for this is a good way of providing upside potential for those negatively affected by new technology.”
At the same time, he added, “it would also mean monitoring carefully developments in the financial stability space.”
In the paper that formed the basis of the speech, Poloz said change stemming from new technologies is hard to measure and will challenge central banks already facing considerable uncertainty.
“Although we are understandably focused on the consequences of rising geopolitical risk and the potential consequences of a global trade war, we should not forget that other longer-term structural forces remain at play,” Poloz wrote in the paper.
Those forces, he said, included the digitization of the global economy, which could cause significant disruption in labor markets as well as the broader economy.
“Assertions that the economy is picking up speed due to a technology-led positive supply shock that will prove to be disinflationary so that interest rates can hold steady, or even decline, will be impossible to prove until long after the fact,” he said.
Still, Poloz suggested, there are signs that it could be happening, including recent data showing people changing jobs are getting outsized wage gains, an indication that productivity may already be on the rise.
“As I said, it’s a huge problem of uncertainty, so we’ve got to wait to see it,” he said. “And in the meantime you act as if it could be happening.”
(Reporting by Kelsey Johnson in Ottawa and Ann Saphir in San Francisco; Editing by Peter Cooney and Jane Wardell)