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🔥‼️🃏Powell reveals the "trump card": Can high productivity break the Fed's dilemma?
‼️Federal Reserve Chairman Powell recently hinted that the central bank holds a "trump card"—soaring productivity. In the tight squeeze of stubborn inflation and weak employment, this factor is becoming a key hope, supporting his cautious expectation of only one rate cut next year.
💎High productivity means workers produce more, helping to curb cost inflation while driving wages and growth. Policymakers have raised the 2026 GDP forecast to 2.3%, and inflation expectations have been lowered, with nearly half of the credit going to the surge in productivity. Powell emphasized that this is not solely due to AI, but AI is accelerating the transformation.
💎However, there are many uncertainties: productivity is hard to predict, and the AI dividend may be concentrated among a few giants. Once investment retreats, growth may suddenly halt. Even more dangerously, efficiency gains could be accompanied by massive unemployment, making social costs difficult to estimate.
‼️If productivity continues to rise, the neutral interest rate (r-star) will also increase, and current policies may become "too loose." Powell candidly stated: "Other conditions are not constant." The market chooses to believe, but if the "trump card" fails, 2026 may face a storm.🃏
