International Monetary Fund Director-General Kristalina Georgieva said that central banks around the world will need to take any slowdown in AI-driven growth into account when assessing the steps needed to combat inflation.
Georgieva explained that concerns about relying on the boom in investments in artificial intelligence and the rise in valuations of companies associated with it have begun to affect markets around the world.
“Things are witnessing ups and downs, and this is likely to continue,” she said during an event at the International Monetary Fund headquarters in Washington, adding that fluctuations will make the task of central banks more difficult, at a time when risks to price stability are increasing.
Her statements came in the wake of a sharp decline that hit the shares of technology companies on Thursday, and its repercussions extended to global markets, amid fears that the victory of the Democrats in the midterm elections for the US Congress would lead to tightening regulatory control over artificial intelligence and slowing down the expansion of the establishment of data centers, which prompted investors to resort to bonds as a safer haven.
These political concerns come at a time when investments related to artificial intelligence are facing increasing pressure, due to questions about the potential returns from the huge spending on the infrastructure necessary for this technology. The recent wave of decline triggered margin calls and raised concerns among individual investors and hedge funds.
Georgieva said that the investment boom in artificial intelligence supports economic growth in some countries, and helps offset the negative effects of the oil supply shock caused by the war in the Middle East, but at the same time it increases inflationary pressures and financial stability risks.
Last month, the IMF warned of major risks threatening growth and financial stability if the investment boom in artificial intelligence ends, in addition to other risks, including the continuation of the war in the Middle East for a long period.
The Fund indicated at the time that the sharp decline in investments related to artificial intelligence could lead to a significant decline in asset prices, which could reduce global gross domestic product by 1.1 percent by 2028, including a decline in US output by 1.8 percent.
Georgieva did not repeat these negative expectations in her statements on Friday, but she acknowledged the increasing volatility in the markets, and said that “a slowdown in the momentum provided by artificial intelligence-driven growth will constitute a factor that must be taken into account, while central banks evaluate the steps necessary to confront stubborn inflation.”
In a related context, Reuters reported, on Friday, that Democrats intend to introduce a wide package of new legislation targeting artificial intelligence systems and the development of data centers, as soon as they take control of the US Congress in January.
This represents a clear shift from the approach of the previous Republican-led Congress. Lawmakers have largely focused on encouraging the development of artificial intelligence, and have refrained from passing legislation that imposes restrictions on this technology.
The number of non-farm payrolls in the United States rose more than expected in October, while the unemployment rate fell to 4.1 percent, in a sign of continued labor market resilience, giving the Federal Reserve more scope to focus on inflation caused by the conflict in the Middle East.
The number of jobs jumped by 165,000 last month, after an upwardly revised increase of 60,000 jobs in September, the Labor Department's Bureau of Labor Statistics reported on Friday. Economists polled by Reuters had expected the number of jobs to rise by 65,000, after a previously announced increase of 29,000 jobs in September.
Estimates ranged between 35 thousand and 125 thousand jobs. Economists have estimated that the economy needs to create at least 40,000 jobs per month to keep pace with the growth of the working-age population. The break-even point, known by this name, fell from about 150,000 jobs in 2024, as a result of the shrinking size of the workforce.
The unemployment rate fell from 4.2 percent in September.
A decline in layoffs to historic levels, coupled with a recent increase in job openings, has raised the prospect of tightening labor market conditions. But economists and US Central Bank officials confirmed that the labor market does not constitute a source of inflation risks. Some economists believe that the shrinking labor supply, in light of the tightening restrictions on immigration and the retirement of numbers of workers, is the main driver of the relatively low unemployment rate.
Last week, the Federal Reserve kept its benchmark overnight interest rate within a range of 3.75 to 4 percent. Economists expect interest rates to rise in December. The October consumer inflation report, scheduled for release next Tuesday, could provide additional indications about the path of monetary policy in early 2027.
Although the labor market is resilient, job gains still lag the pace of economic growth; GDP rose at an annual rate of 3.4 percent during the third quarter, driven by strong consumer spending and a significant increase in corporate investments in artificial intelligence.
Economists said that employers may have exaggerated hiring after the “Covid-19” pandemic, and that some companies are still unsure of their employee needs in light of the integration of artificial intelligence technologies into their operations. They added that the uncertainty resulting from the US-Israeli war with Iran, which led to a rise in energy prices, also increases the reluctance of employers to increase the numbers of their employees.
Limited job opportunities have made it difficult for young people, recent university graduates, and some unemployed people to find jobs.
Dissatisfaction with the economic conditions, along with anger over the conflict in the Middle East, which has now entered its ninth month, also contributed to the loss of the Republican Party to which President Donald Trump belongs to control of Congress, after the Democrats achieved a strong performance in the midterm elections that took place this week.
