IMF's Georgieva says any slowdown in AI-driven growth would be factor for central banks

IMF: Central Banks Must Factor AI-Driven Growth Slowdown into Inflation Strategy

Central Banks Face New Challenges Amid AI Investment Volatility

By Andrea Shalal

IMF's Perspective on AI-Driven Growth and Inflation

WASHINGTON, Nov 6 (Reuters) - Central bankers around the world would need to consider any slowdown in AI-driven growth as they assess steps in their fight against inflation, International Monetary Fund Managing Director Kristalina Georgieva said on Friday.

Georgieva said concerns about dependence on the AI investment boom and high valuations were impacting markets around the world.

Market Volatility and Central Bank Complications

"Things are going up and down, and this is likely to continue," she told an audience at IMF headquarters in Washington, adding that the volatility would complicate the job of central banks at a time when risks to price stability had been growing.

Technology Stock Rout and Investor Reactions

A steep rout in technology stocks on Thursday rippled through markets on fears that the Democrats' victory in the US midterm elections would increase regulatory scrutiny of AI and slow the data center build-out, sending investors to the safety of bonds.

The political jitters are hitting an AI trade already on shaky footing due to worry about return on massive spending on AI-related infrastructure, with the meltdown spurring margin calls and spooking retail investors and hedge funds alike.

AI Investment Boom: Growth, Inflation, and Stability

Georgieva said the AI investment boom was lifting growth in some countries, helping to offset a negative oil-supply shock triggered by the war in the Middle East, but it was also adding to inflationary pressures and financial stability concerns.

IMF's Warning on AI Investment Risks

The IMF last month flagged significant growth and financial stability risks from a potential ending of the AI investment boom, among other factors, including a prolonged Middle East war. At the time, it warned that a steep drop in AI investment could lead to a sharp fall ⁠in asset prices, ultimately cutting global GDP by 1.1% by 2028, including a 1.8% drop in US output.

Georgieva did not repeat the downside forecast on Friday, but acknowledged the recent market volatility.

"Should there be a slowdown in the AI-driven growth impulse, it would need to be factored in as central banks assess the necessary steps in the fight against stubborn inflation," she said.

Political Developments and Regulatory Outlook

Democrats are planning to unleash a flood of new legislation targeting artificial intelligence systems and data-center development when they take control of the US Congress in January, Reuters reported on Friday, citing congressional aides and advocates.

Shift in Congressional Approach to AI Regulation

That would mark ​a sharp shift from the Republican-led Congress, where lawmakers largely focused on promoting AI development and declined to pass legislation restricting the ‌technology.

(Reporting by Andrea Shalal; Editing by Cynthia Osterman)