Bunge: AI is everywhere now, but how does it affect monetary policy?

One lesson we can learn from history is that old jobs tend to be replaced by new ones over time, but that the transition can often be difficult for the people in the occupations being automated. In the case of AI, developments so far suggest that young people may be particularly affected, but at the same time find it easier to adapt to new conditions than older people, said Ms Bunge. “However, companies seem to be following the 'no hire, no fire' principle. They are not laying off young people in vulnerable jobs, but nor are they hiring those new to the labour market.” 

On the broader issue of how AI could affect the macroeconomy and monetary policy, she addressed issues such as business costs, the so-called neutral interest rate, investment demand and the risk of a stock market bubble. “To summarise, a number of different effects can arise from AI that can influence the policy rate in different directions. However, the timing of when the effects occur is very difficult to assess.” 

Ms Bunge also referred to modern history and how the discussions went during the dotcom boom, the “new economy” and “digitalisation”, noting that it may take time before we see the effects in mainstream macroeconomic statistics. One way to look for signs of change is therefore to talk to companies. It is also important to monitor households’ perceptions of developments. “The overall conclusion for me is that AI has not yet penetrated the labour market and productivity to such an extent that it affects current monetary policy, but developments are moving very fast and this means that we will have to monitor what happens in the coming years,” said Ms Bunge.

The economic situation and monetary policy

In connection with her speech, Ms Bunge also commented on her stance at the latest monetary policy meeting. She said that the war in the Middle East had led to rising prices for oil, gas, jet fuel and fertilisers, which means inflation will be higher than would otherwise have been the case. She emphasised that the Riksbank needs to be vigilant about spillover effects. 

“The risks increase the longer the war continues, but I believe there is little to gain by responding pre-emptively to the supply shocks we are currently observing. The Swedish economy is in a good starting position; inflation is low, there is plenty of spare capacity in the economy and the inflation target has a high degree of credibility. We have room to await further information before we need to act.”