After attending the annual technology-enabled disruption event produced by the Dallas Federal Reserve Bank, several key ideas emerged about macro- and micro-level trends. As the U.S. currently sits at the beginning of the end of the pandemic (hopefully) from vaccinating its way through it, some businesses have advanced their own digital economic footprint faster than they might have otherwise. It has implications for monetary policy.
Pepsi Co’s Stephen Williams mentioned that his firm is as much a technology firm as a consumer goods firm, increasingly leveraging artificial intelligence (AI) in operations. He suggested that they are five years ahead of where they thought they would be in their digital and technological progress. We know the pandemic has unleashed a torrent of online shopping and business activity since March of 2020. He further mentioned that AI is here to stay, improving blue-collar jobs but also impacting white-collar ones as well from their on-the-ground perspective.
‘Data is the new oil,’ noted academic Diane Coyle of Cambridge University. I’ve also heard it said as ‘information is the new oil.’ Her observation —information needs tacit knowledge to be used —conveyed a most important truth that is often overlooked. We still need human intelligence to apply the mountains of information being gathered by our computerized extensions of ourselves. Big data needs a visible hand in its laissez faire endeavors of gathering insights and applying them.
Of course, it would not be a Fed conference without a question being asked about the Fed’s inflation outlook and their thinking about interest rates and securities purchases. The current economic climate as it relates to monetary policy can be characterized as uncertain. Dallas Fed President Robert Kaplan says that a key watchword for him is risk management. An example given was to consider the benefits of Fed stimulus (interest rates and securities purchases) versus the unintended consequences. One such sign noted by Kaplan was that investors were competing with home buyers in the red-hot housing market. Witness the home price appreciation in markets throughout the U.S., with an increased demand (and availability of low-interest rate capital) pressuring a limited supply from pandemic economics and work-life behavioral shifts.
Richmond, Virginia’s Fed President Barkin observed that the pursuit of productivity was everywhere. He expects more businesses to automate operations to replace labor versus businesses raising wages to attract workers. My inference is that there will be more dislocation of certain types of jobs. On the flip side, the technologies that replace these types of positions will usher in new upskilled roles for replaced workers.
In general, technological advances have pushed inflation down over the last decade or more, a cyclical force which has been proven by research and cited in the earlier conferences. The labor issues at hand with technology are structural in nature. The pandemic’s effects on unemployment have therefore collided with changes already in motion in the labor market. This may mean that the current unemployment scenario (mentioned at 8 million) will take longer to rebalance. The states rolling back unemployment federal benefits may be giving up demand support at the expense of the anecdotes and voicings by businesses to find low-wage workers. TBD.
Atlanta Fed President Bostic expects a turbulent transition, with markets currently experiencing volatility. Inflationary pressures, those which are transitory versus permanent, are challenging to disentangle at present. The inference, and supporting statements, is that the decision to raise interest rates or reduce securities purchases cannot be decided based on one quarter’s data set.
The macro forces of technological advances might be considered an abstraction in some ways. However, as this touches every consumer, business, and institution, displayed in very concrete terms during the pandemic, it shakes the investment case and rationale in virtually every industry. We observe this in the gyrations of the stock markets as investors sort through what type of creative destruction is really happening.
(My next post will attempt to overlay some of these observations onto the energy transition and sustainability space.)