AI Bubble Issue Is ‘Critical’ to Inflation View, Hildebrand Says
(Bloomberg) — Working out whether the artificial intelligence hype is justified is fundamental to judging whether the world faces the danger of more inflation, former central banker Philipp Hildebrand said.
The vice chair of BlackRock and ex-head of the Swiss National Bank told Francine Lacqua on Bloomberg Television that determining whether or not the technology is another bubble is effectively a binary question with huge implications for economies and investors either way.
“It’s a very important issue on how this potential, this ability and principle of these investments to enhance productivity, push up potential growth,” he said, speaking on the sidelines of the World Economic Forum in Davos. “That is in a sense the critical macroeconomic question, which will have huge repercussions on financial markets.”
As with prior technological shifts, economists are struggling to work out the full implications of AI. Among policymakers who have offered a view, Bank of England Governor Andrew Bailey has observed early signs that it is starting to deliver on its promise as a boost to productivity, and European Central Bank President Christine Lagarde said that it is having a positive impact on euro-area expansion.
On Tuesday however, former International Monetary Fund official Gita Gopinath reiterated her doubts about the investment boom around it — saying that “whether it translates to profits in this hyper-competitive environment is what I’m questioning.”
“Depending how you look at this, you know, close to half of GDP growth has been related to, broadly speaking, AI,” Hildebrand said. “It has huge potential in raising growth, and if it does that, then the market pricing that you see will be justified. We will be able to deal with the high debt levels, we will be able to have growth that is not particularly inflationary.”
The flip side to that view is also stark, he added.
“If some of these expectations are not fulfilled, we’ll be in a very different world of of stickier inflation, of lower growth, bigger debt problems,” Hildebrand said. “You know, presumably more significant political issues.”
–With assistance from Noele Illien.
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