In my research, I view AI as a "General Purpose Technology...
As I lead Generative AI initiatives here in Bengaluru, I’ve spent a significant portion of my research analyzing how **Large Language Models (LLMs)** and **Agentic Frameworks** are not just automating tasks but rewriting the rules of economic output. Recently, this shift has triggered a [mammoth disagreement](https://news.google.com/rss/articles/CBMiqwFBVV95cUxOSXBja3BYZzBaU2preXpuNjJOWTlMaHJHSUFEMFBtV0Q0Ul9yVVU3aDdhdklWSkYyOTZqc1VweHhtUTNlR3VQMVpxNUJfS0gyekdvTXl2aG1HR2ZzRkE5amJsby12M2N6V1V6R3Z0Q3ZjV190TEl3TVVvcWd5RGVXcEZFQTdQNERkX3pRU0g0QnVCX3JBc3I0ZlJKSWw1VnlXbm1BUWRmMjJrclk?oc=5) within the Federal Reserve.
The central bank is currently split on a fundamental question: Is AI a deflationary productivity miracle or a destabilizing force that complicates the "neutral" interest rate (r-star)?
## The Productivity Paradox in Monetary Policy
In my research, I view AI as a "General Purpose Technology." One faction at the Fed believes AI will mirror the 1990s internet boom—drastically boosting productivity, lowering the cost of goods, and allowing the economy to run "hot" without triggering inflation.
However, a more cautious group argues that the capital expenditure required to build AI infrastructure—the GPUs, data centers, and power grids—is inherently inflationary in the short term.
### Why Agentic Frameworks Change the Equation
From a technical standpoint, the deployment of **Agentic AI**—where models don't just "chat" but execute complex workflows—represents a massive shift in labor elasticity.
* **Recursive Efficiency:** Unlike traditional software, Agentic systems improve their own operational loops.
* **Latency in Data:** The Fed relies on lagging indicators (CPI, Jobs reports). AI-driven markets move at the speed of inference, creating a "policy lag" that could lead to systemic errors.
## My Perspective: The "Black Box" of Economic Forecasting
Much like the "Black Box" problem in deep learning, the Federal Reserve is struggling with interpretability. If AI increases the economy's potential output faster than the Fed can measure it, they risk keeping interest rates unnecessarily high, stifling the very innovation we are building.
In my work with LLM-based predictive modeling, I see clear signals that the traditional Phillips Curve is weakening. We are entering an era of **"Algorithmic Alpha,"** where productivity gains are non-linear. The Fed must evolve its modeling from static spreadsheets to dynamic, AI-informed simulations to avoid a catastrophic miscalculation.
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Keywords: AI monetary policy, Federal Reserve AI, Harisha P C, Generative AI productivity, Agentic Frameworks, LLM economics, Bengaluru AI Research, Inflation and Artificial Intelligence]