Fed must dig deep on AI impact to make right rate calls ahead, Daly says

SAN JOSE, California, Feb 17 (Reuters) - The Federal Reserve must dig deep into the data to assess whether artificial intelligence is boosting productivity growth and enabling faster economic growth without igniting inflation that would require it to tap the brakes with tighter policy, San ?Francisco Fed President Mary Daly said on Tuesday.

The Trump administration ?says that's already happening, and some economists say that rising investment in AI will boost productivity growth further, creating an economy ?that, as in the 1990s with the adoption of computers and software, could grow faster ?than before even as inflation remained tame.?

So far, Daly said in ?remarks prepared for delivery ?to an event at San Jose State University hosted by the Silicon Valley Leadership Group, "most macro-studies of productivity growth find limited ?evidence of a significant AI effect." That could ?be because it is still too soon to see the results of the improvements from investments by individual companies in some corners of industry.

Or, she said, "it ?could also be that we are simply not ?there yet," ?and it takes a lot more time for economy-wide transformations to occur.?

To figure out how the Fed should respond - whether faster economic growth could be an early warning ?sign of inflation to come, or could be benign as far as price pressures - ?the central bank will need to do what it did in the 1990s under then-chair Alan Greenspan, Daly said.?

Back then, Greenspan felt that the productivity data did not accurately capture the productivity-boosting investments in computers and software that was taking off under the hood of the economy. He ?argued for ?holding rates steady instead of raising them to head off inflation, and ?it turned out he was right, Daly said.

To assess whether something similar is happening with AI, ?Daly said, the Fed will need to look underneath the national data, talk with businesses, and assess which way the economy is heading.?

"The willingness to confront what we know and what we don't is essential to making appropriate and durable policy that serves all Americans," Daly said.?

Daly did not address her view on the near-term setting of monetary policy on Tuesday. She said previously she supported the Fed's decision to ?hold rates steady last month in the 3.50%-3.75% range, though she also said there was a case for cutting the policy rate to bolster a job market where she says workers feel ?pinched by scarce job opportunities and wages ?that are being eaten away by inflation.?

(Reporting by Ann Saphir; Editing ?by Chizu Nomiyama and Andrea Ricci)