Warsh: "Greatest Economic Transformation of Our Lifetime… We Are in the 1st or 2nd Inning of the AI Revolution"

Central bank governors from major economies around the world have reached a consensus that artificial intelligence (AI) could upend everything from financial and labor markets to bank lending, security, and power demand, potentially triggering problems that are currently unimaginable.
According to a Reuters report, AI was the overwhelming theme that permeated all agendas, including immigration, climate, and supervision, at the European Central Bank (ECB) Annual Forum on Central Banking, which concluded in Sintra, Portugal, on July 1 (local time).
Even Kevin Warsh, a member of the U.S. Federal Reserve Board who was making his debut, saw the spotlight of the three-day forum shift toward the topic of AI.
"This is the most consequential period for our economies in our lifetime," Warsh said. "When the internet was born, who knew there would be 1.5 million Uber drivers? We are in the first or second inning of this revolution."
Asset bubbles and market manipulation were cited as primary pathways that could threaten financial stability.
The Bank for International Settlements (BIS) warned of short-term downside risks, noting that the scale and speed of the current AI investment boom are similar to historical asset bubble collapses, such as the British railway mania of the 1840s, the Roaring Twenties, and the dot-com bubble.
Torsten Slok of Apollo Global Management assessed that while capital expenditure (CAPEX), mostly invested in AI infrastructure, has already boosted U.S. GDP by 1 percentage point, the AI stock bubble formed on this basis has been undergoing corrections in recent weeks.
"Whether AI performs better than expected or falls short, financial stability is threatened," he warned, suggesting that no scenario is safe.
Professor Itay Goldstein of the University of Pennsylvania pointed out, "AI algorithms are actually demonstrating the ability to collude on price manipulation paths, creating bubbles and causing crashes," adding, "This has more serious implications for financial stability."
Warnings were also raised that existing supervisory systems could be neutralized if AI penetrates deeply into credit decisions.
Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department at the International Monetary Fund (IMF), said, "How can supervisors evaluate the lending decisions of these AI agents? It is essentially a black box. It is difficult to explain why such decisions were made, and this is a key supervisory challenge."
Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England (BOE), proposed the introduction of a system similar to deposit insurance for financial institutions vulnerable to cyberattacks.
Tiff Macklem, Governor of the Bank of Canada, noted, "The internet also created new industries beyond imagination, but it could not avoid the dot-com bubble," not ruling out the possibility of a correction following the overheating of AI investments.
The core message of the forum was the two-way risk: if AI meets optimistic expectations and replaces humans on a massive scale, it could lead to a recession due to mass unemployment and shrinking consumption; conversely, if it falls short of expectations, the massive investments made could fail to generate returns.
(Photo: AP, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.