Central Banks in a Bind + Could AI Replace the FOMC? | The Spillover

Global central banks face unprecedented challenges as they navigate inflationary pressures, communication dilemmas, and the integration of artificial intelligence into economic forecasting. Adam Posen, President of the Peterson Institute for International Economics, argues that while transparency is essential for anchoring expectations, excessive predictability can distort markets and create moral hazard. Regarding AI, while it offers powerful inductive capabilities for managing complex data, it cannot replace human judgment in non-deterministic systems prone to political and exogenous shocks. Meanwhile, a global fiscal binge—fueled by defense spending, aging demographics, and political polarization—is pushing long-term government bond yields higher. This simultaneous fiscal expansion across the G7 creates a competitive environment for a shrinking pool of global savings, significantly increasing the risk of sovereign debt crises in major economies and necessitating urgent contingency planning for potential international bailouts.