Waller: The Burst of the AI Bubble Will Change the Financial Landscape

Federal Reserve Governor Waller stated that if the bubble in artificial intelligence (AI) related assets bursts or if there is a significant market correction, the financial environment will undergo substantial changes. He does not want the Federal Reserve to raise interest rates too early to avoid triggering an economic recession, but he emphasized that we cannot repeat the mistakes of 2021 when the response to inflation was slow. Waller believes that the current job market is stable and there is reason to believe that inflation is likely to continue to decline without the need for further tightening of policies. However, he warned that relying solely on market expectations for a decline in inflation is insufficient to support the Federal Reserve's continued wait-and-see approach. If action is taken only after market confidence wanes, the Federal Reserve may have to raise interest rates more aggressively to catch up with inflation. He stated, "We cannot afford to ignore inflation until it is completely gone."

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