Citi warns: AI may trigger a US deflation crisis, limiting the Federal Reserve's room for rate cuts

Glonghui March 2｜The latest report from Citi warns that as more and more companies adopt AI, it will ultimately lead to a rise in unemployment, which may further push the United States toward deflation. Economists generally believe that deflation is more difficult to resolve than overheating inflation. When prices rise too quickly, the Federal Reserve can suppress prices by raising interest rates; but if deflation occurs, the Fed has limited room to cut rates, and once rates approach zero, policymakers must turn to other policy tools to stimulate the economy. In the past century, the United States has only experienced deflation a few times, and each occurrence happened under unprecedented economic pressure, such as during the Great Depression and the global financial crisis. However, the report also points out that the timing of when AI-related developments will have a substantial impact on the economy remains highly uncertain.