White House economic adviser Kevin Hassett said on April 6 that a surge in capital spending and productivity improvements driven by artificial intelligence could amount to a “supply shock” that eases inflationary pressure and ultimately allow the Federal Reserve to cut interest rates.
Speaking to CNBC, Hassett argued that the combination of heightened corporate investment and AI-driven productivity gains is putting “downward, downward pressure on inflation,” and that reduced inflationary pressure should “take the pressure off the Fed.” He added he expects interest rates would be lowered if President Donald Trump’s nominee to lead the central bank, Kevin Warsh, is confirmed as Federal Reserve chair.
Hassett’s comments, reported by Reuters, reflect a White House view that supply-side developments — rather than weaker demand — may be the principal force shaping inflation going forward. If sustained, such a supply shock could alter the Fed’s policy calculus: policymakers have maintained elevated interest rates in recent years to tamp down inflation, and persistent disinflationary trends would make room for easing.
The signal from the White House comes as Fed officials and economists weigh mixed signals from the labor market and the broader economy. Federal Reserve officials have recently cautioned that swings in monthly jobs data and a slowing labor force expansion do not necessarily indicate underlying weakness, and that the path of policy will depend on incoming data on inflation and employment. Those uncertainties make the timing and sequencing of any future rate cuts difficult to pin down.
AI’s role in this debate is central to Hassett’s argument. By raising output per worker and encouraging capital investment — in data centers, chips, automation and software — AI could boost potential supply and reduce unit labor costs, all of which would be disinflationary. But economists remain divided on how quickly such gains will materialize and whether they will be broad enough to offset other inflation drivers, such as fiscal policy or supply-chain disruptions. The policy community is also wrestling with AI’s labor-market and social effects; groups such as OpenAI have recently urged governments to consider tax and benefit changes as the technology reshapes work.
Hassett’s linkage between Fed policy and the Warsh nomination underscores the political stakes in shaping expectations about monetary policy. Kevin Warsh — a former Fed governor and frequent commentator on central banking — was tapped by the administration to succeed the incumbent chair, and his confirmation would be closely watched by markets and policymakers looking for signs of the Fed’s future direction.
For now, the Fed’s decisions remain data-dependent and made independently of the White House. Hassett’s remarks contribute to an ongoing debate about whether supply-side improvements from AI and investment will be swift and potent enough to bring down inflation and prompt the Fed to ease policy, or whether the central bank will require more consistent evidence of disinflation before trimming rates.