Generative AI is not just another tech hype cycle that is bound to die down but is instead a game-changer for human productivity, according to the Federal Reserve. The big caveat, though, is the road to get there will be “inherently slow” and “fraught with risk.”
In a recent paper published by the Fed Board of Governors, researchers suggest that the hype around generative AI is probably not a bubble in the long run and that the technology will be a serious macroeconomic force, proving to have revolutionary effects for labor productivity akin to electricity and the microscope.
The idea that generative AI will make the workforce more productive isn’t a groundbreaking one. It’s been lauded by corporate executives and many AI bulls alike since OpenAI’s generative AI model ChatGPT sparked the AI craze.
But what’s significant is that the country’s most powerful economic institution has just voiced notable confidence in the technology’s potential. Albeit with a catch.
AI could be the next microscope
The paper divides technological innovations into three categories. First, you have innovations like the light bulb, which dramatically increased productivity initially by allowing workers to not be limited to daylight. But once the technology was adopted widely, the lightbulb stopped providing additional value to workplace productivity.
“In contrast, two types of technologies stand out as having longer-lived effects on productivity growth,” the researchers write, and AI has characteristics of both.
The first are “general-purpose technologies,” like the electric dynamo or the computer. The electric dynamo was the first practical electric generator, and it continued to deliver accelerating productivity growth even after widespread adoption because it spurred related innovations and continued to improve on itself.
The researchers say that generative AI is already showing signs that it fits the bill. You have specialized LLMs for specific domains like OpenAI’s LegalGPT meant to assist in legal matters, and “copilots” like Microsoft’s Copilot product, which is meant to increase office productivity by integrating generative AI into corporate workstreams. Fed researchers think even more knock-on innovations are to come, and that wave will be led by digital native companies.
And it’s evident that the core technology is rapidly innovating and will likely continue to do so as companies develop the technology with an aim to achieve artificial general intelligence. In the meantime, the paper points out, the technology’s rapid growth has already given us further innovations like agentic AI and landmark AI models like Deepseek’s R1.
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