Why AI makes central banking tougher

According to new analysis from the Bank for International Settlements—the central bank for central banks—artificial intelligence is creating major headaches for monetary policy. The challenge is structural: AI simultaneously affects both supply and demand in the economy, making it nearly impossible for central bankers to know which direction interest rates should move. On one side, massive investment in AI infrastructure is driving demand for semiconductors and data center equipment, while a soaring stock market is boosting consumer wealth and spending. On the other side, AI's productivity gains should theoretically deflate prices through increased supply. Per Axios, central bankers at the Federal Reserve, Bank of England, and Bank of Japan face profound uncertainty: they must decide whether to raise rates, cut them, or hold steady—and they risk either stoking inflation or accidentally triggering a recession if they miscalculate.

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