A senior central banker has raised the possibility that the artificial intelligence boom could alter where interest rates settle over the long term — a shift that would have sweeping consequences for borrowers, investors, and monetary policy.
Central bankers have long debated what economists call the “neutral rate” — the interest rate that neither speeds up nor slows down an economy. That invisible benchmark shapes how high or low central banks set borrowing costs. A prominent central bank official is now arguing that the AI revolution may move that benchmark in ways policymakers cannot yet fully predict.
The argument runs roughly as follows: waves of transformative technology tend to lift productivity — output per worker. When productivity rises, businesses invest more, demand for credit increases, and the economy can sustain higher borrowing costs without stalling. If AI proves as transformative as its proponents claim, it could push the neutral rate higher than the levels many economists currently assume.
That matters because central banks use their estimate of the neutral rate as a compass. If the true neutral rate is higher than the map shows, a central bank could unknowingly be running looser policy than intended — potentially allowing inflation to re-emerge even after it appears tamed. Conversely, a too-low estimate would mean rates are tighter than they look, which could unnecessarily weigh on growth and employment.
For bond and equity markets, the stakes are significant. Longer-run interest rate expectations are baked into prices across almost every asset class. A durable upward shift in the neutral rate would mean higher government bond yields over time, higher borrowing costs for companies and households, and lower valuations for long-duration assets such as growth stocks.
Not every economist is convinced. AI’s productivity gains, while real in some sectors, are still unevenly distributed and take years to show up in official data. Many analysts argue it is far too early to revise the neutral rate on the basis of a technology whose macroeconomic impact remains genuinely uncertain. The neutral rate is also influenced by demographics and global saving patterns — forces that could push in the opposite direction.
Still, the fact that a senior central banker is openly weighing AI’s influence on the rate outlook signals that the question is moving from academic discussion to mainstream policy conversation. We will be watching whether other major central banks echo the view in the months ahead.
For now, estimates of the neutral rate remain wide and uncertain — but AI’s potential to reshape them is no longer just a theoretical exercise.
