(Bloomberg) -- Federal Reserve Bank of Chicago President Austan Goolsbee lauded the recent increase in productivity growth, but warned that over-anticipating positive economic effects from it could put the central bank in a “tough position.”
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“If there’s too much anticipation of these productivity booms, it can overheat the economy in the short run and it can lead to an investment overhang, not unlike the one of 2000, which ushered in the recession,” Goolsbee said in an interview with Bloomberg News ahead of the speech he’s scheduled to deliver Friday on the topic.
“That overheating in the short run can force the Fed to have to be more mindful about the fight against inflation,” he said Wednesday.
In prepared remarks for the speech, to be delivered at a conference at Stanford University later on Friday, Goolsbee called the recent acceleration in productivity growth “weird and lovely.”
Labor productivity — or output per hour — is a closely-watched measure of economic efficiency and has grown above its pre-pandemic trend in recent years, data from the Bureau of Labor Statistics show.
Higher productivity growth means workers can produce more in the same amount of time, allowing companies and workers alike to make more money without fueling inflation. That has likely helped the Fed cool inflation without causing a recession. But the central bank will need to carefully assess whether the productivity gains will continue.
“That’s not easy, but I think it starts by incorporating the perspectives of industry experts, business leaders and people on the ground because they may see things before the data can statistically prove it,” Goolsbee said in his prepared remarks.
New Technology
The Chicago Fed chief pointed to several new developments that may be contributing to the increase in productivity growth, including work-from-home policies and a reallocation of labor following the surge in unemployment at the onset of the pandemic. But those would likely just have a one-time impact.
There’s evidence technology, namely artificial intelligence, is driving the productivity gains of the past few years, Goolsbee said, and that could have a longer-lasting impact as it moves through different industries in the economy.