Kevin Warsh, nominated to be the next chair of the Federal Reserve, has a point about artificial intelligence (AI) and inflation, arguing that it will justify lower interest rates. However, this contradicts mainstream economic theory that faster trend growth raises the “natural rate of ​interest” as firms and households bring forward spending. Warsh argues that this is a mistake and that if the central bank does not raise borrowing costs in lockstep, demand can overheat. He also notes that AI use remains patchy, but industries that expect a significant role for large-language models seem more willing to limit headcount. The impact of AI on inflation is also seen as temporary, as wages and housing have become more expensive. However Warsh notes that technological progress is not as rapid as the personal computer revolution took until the 1990s to deliver efficiency benefits.