# A Conversation with Federal Reserve Board Governor Christopher J. Waller | DC Fintech Week 2025

- Channel: [DC Fintech Week](https://streameth.org/dc-fintech-week)
- Date: 2025-12-21
- Watch: https://streameth.org/watch/yt-QZ_WiYotNVw
- YouTube: https://www.youtube.com/watch?v=QZ_WiYotNVw

## Transcript

We have a real treat, another big news maker. Uh, as we all know, the Federal Reserve is one of the primary institutions responsible for not just regulatory and monetary policy, but it it really sets the stage uh for technology and conversations on innovation and our banking system. Uh and and with that uh I'm just absolutely delighted to welcome uh Federal Reserve Governor Christopher Wallace uh Waller to the stage to have a deep dive into these issues, to offer his thoughts and in some prepared remarks on his agenda and priorities at the Federal Reserve and to engage in a couple of extra Q&A follow-ups afterwards. But uh let's put our hands together to welcome Governor Waller. All right. Good afternoon. How you doing? How's the conference? >> Good. Excellent. Hopefully I can keep up with the quality that everybody's given you so far. So, I want to thank you for the opportunity to speak today about artificial intelligence. AI is a powerful and rapidly advancing technology that captured everyone's attention. Now, if you've watched enough sci-fi, you know that major technological change is either dystopian or utopian. Either the robots take over the world or they help save it. Now, these polarized views are also common among economists and and technologists. On one side, they're the doomers, those convinced that new technologies will destroy jobs, widen inequality, and concentrate power. On the other side, they're the techno optimists. Those convinced we're on the brink of an unprecedented leap in productivity, growth, and creativity if we just let the technology proliferate. Now, as usual, the truth is probably somewhere in between. So the job of an economic policy maker is to separate hype from hyperbole from hard data and sound analysis and understand what AI really means for growth, productivity in the broader economy. So I'm going to I will focus on three aspects of major technological change that repeat quote unquote through history. First, technological change is a constant in our lives and it is almost always disruptive. It upends the way we work and socialize. Second, it alters existing power relationships in unsettling ways. And finally, technological change reliably raises productivity and our standard of living while improving the quality of our lives. My intent is to describe how AI is likely to affect our lives along these three lines and how it differs from past technological changes. Now, we have always had technological changes that dramatically transform the economy in our daily lives. In the 1880s, electricity electricity was still a curiosity reserved for a few wealthy urban people and some limited industrial uses. By 1920, half of homes had electricity. By 1940, nearly half had a refrigerator. And by 1945, 85% of homes were electrified. So in about 60 we went from a very few homes to 85% of the US households being covered by electricity. Now automobiles were another example. Its use rose rapidly. Auto registrations rose from 140,000 in 1906 to 23 million in 1929. Which is amazing given that the total number of households was less than 30 million. 29 23 million and less than 30 million households. So almost everybody had a car. Now these advances change daily life in profound ways. Another aspect of [clears throat] technological change is the speed at which technologies are being adopted. In the past 50 years, we've experienced adoption of new technologies twice as fast as what I just described. Personal computers were widespread within 20 years, the internet in 12 years, and it only took six years for smartphones to become universal. And AI is moving even more rapidly than that. Now, I tend to believe that the transition for workers affected by by AI will be accelerated also, but no one really knows. Such predictions are certainly beyond my powers as an economic policy maker. So I'll limit myself to the here and now. The point of this discussion is that technological change is a constant in our lives. It is always happening and it will continue to happen. And AI seems to be following the pattern of ever faster adoption and change. Now although it's a constant in our lives, technology also disrupts our lives every time new innovation appears. The way that we work and produce output changes. Jobs disappears. New ones appear. Our social lives are disrupted as well, often in good ways, but sometimes not so good. We used to write letters and mail them to communicate with our loved ones. This took time and was expensive. Now we text or use FaceTime or Zoom to communicate with friends and families anytime. This makes it easier to maintain relationships across geography and time, but it can also undermine those social connections. When I walk into a party and I see half the people staring at their phone, it's not a lot of good social interaction. So technology disruption, like anything else, has benefits and costs. That's the way economists think about the world. But as I will argue later, I believe that we need to let this disruption occur to recognize the benefits alongside the cost to enable us to lead better lives. Now, my second point was that technological innovation can alter power relationships in profound ways. When Gutenberg invented the printing press, he took away the Catholic Church's power over the written word and democratized it. When personal computers appeared, power shifted from those who manage mainframes to individual users. When the internet arrived, the control of news, information, and opinion pieces shifted from major news outlets to anyone with a web page. And AI will do the same. It will take power from experts and shift it to non-experts. Much like Gutenberg's printing press, AI will democratize expertise. Tools that once required specialized training are already becoming accessible to a much wider range of people. We see this happening with software coding already. A nurse using an AI diagnostic tool or a technician relying on a generative model to troubleshoot complex equipment can perform much higher order task more efficiently. This will also probably likely happen for scientific discovery. So those who collected economic rents or excess payments for their power and expertise, they're going to lose control of that power and those rents. But this will improve our lives in the process. Now whenever a new technology a new technology emerges, the first question economists get is about jobs. Will this replace people or make them more productive? The challenge is that with innovation, there is often a time inconsistency between the cost and the benefits. The disruptions come first. The benefits take time. When a new technology appears, it's always easier to see the jobs that are likely to disappear. But it's much harder to see the ones that will be created. When automobiles came on the scene, it was easy to see that if you were a saddle maker, your job was gone. But what wasn't obvious was that the saddle maker skills could be used to make car seats and that higher productivity auto production would create more and much higher paying jobs. 10 years ago, this is one of my favorite examples. If I had said there was something called Tik Tok and it would arrive soon, you would all say whatever, what is this thing? But now, and at that time, it would have been very hard to imagine that or that social media would create what is now an established occupation, an influencer. I like to call myself an influencer sometimes. I just don't get paid for it. And the pattern appears to be repeating only faster. A recent study by Stanford economists found that employment has fallen about 13% in occupations most exposed to AI relative to those less affected. Those contractions have appeared mainly in support administrative roles fields that tend to be automated first. This early effect from AI is consistent with what I've been hearing from business contacts around the US. Retailers in particular are cutting back on employment for call centers and IT related occupations. So far, most say this is being handled through attrition, but a number of retailers say there's a potential for downsizing next year. That is also a message from the New York Fed survey that finds very few businesses are reporting AI induced layoffs. They are instead using the technology to retrain employees. That said, AI is influencing recruiting for these firms with some scaling back hiring because of AI and others adding workers who are proficient in its use. Looking ahead, however, layoffs and reduction in hiring plans due to AI use are expected to increase from everything I hear, especially for workers with a college degree. It's that disruption of expertise, and a college degree is a form of expertise. Returning to my final point, history has shown us that technology improves productivity and our standard of living. We initially always talk about how it will be a substitute for labor. This was the basic premise behind Karl Marx's theory of capitalism. Machines would replace humans in production which would raise unemployment so high that social revolution would occur leading to the end of capitalism and the rise of a socialist utopia. Yet the theory, the Marxist theory makes one fundamental mistake which is failing to see that capital and labor are compliments not substitutes. More machines mean a firm can produce more output but that also requires more labor as well. This is obvious if you look at economic data. The US capital stock, machines, equipment, everything we have measured in constant prices to control for inflation is 7 times larger now than it was in 1950. Seven times. Yet the unemployment rate in September 1950 was 4.4%. And it is 4.3% as of August 2025. This is why economists are typically techno optimist. History has repeatedly shown that adopting new technologies leads to economic growth and greater employment, not less. Technological disruption is one form of a concept that economists have studied since Joseph Schumpeder named it in 1942. Creative destruction. This topic has never been more relevant. And I note that just last week, a share of the Nobel Prize in Economics was awarded to two economists who explored how productivity enhancing disruption raises living standards. Now, there will surely be losers and winners from AI. I make no doubt about that. But aside from questions about how AI's gains will be distributed, there's a more fundamental matter of how they will be measured, even at a macro level. Firms are using AI to increase productivity. That's the payoff for a profit maximizing firm. This gain and producing more output with the same inputs is counted in gross domestic product. And as a result, you're getting more output, the same number of inputs. Productivity per unit of input goes up and that raises GDP and productivity growth. Now in America, one common feature of great technological innovation has been an onslaught of competition that has rapidly driven down cost and resulted in rapid and widespread adoption. If hardware and software innovation continue to drive down the cost of AI, then I see few barriers to its ongoing proliferation throughout the economy. That prospect clearly is driving the surge of AI investment we have seen and will it continue well that will depend on part whether AI delivers on the productivity increases that I believe it will bring. So labor productivity measures output per hour of work. The data is volatile but the average growth of productivity over the past few years is slower over the last decade than the previous decade. A crucial question is whether AI will contribute to a resurgence in productivity growth. Any sustained pro productivity growth above 2% will tend to support rising real incomes and living standards without inflationary pressure. As a monetary policy maker, I'm hoping that that happens with AI. While we often focus on how technology enhances market activity and productivity and measured output, it also enhances the value of non-market-based activities. For example, Google Maps allows me to navigate foreign cities, foreign cities easier and faster when I'm sightseeing. Now, while that value to me is not measured in GDP because it's not a market-based activity, it clearly makes my life better. So, a lot of technology doesn't always have to show up in productivity statistic. It just makes my life easier and better. Now, Aentic AI has the potential to save me lots of leisure time that would have otherwise been spent planning vacations, paying bills, and making medical appointments. But if these time-saving AI activities free me up to do more market-based production, then GDP will increase from these non-market savings of my time. I have no doubt that AI will boost GDP and national income, but many of its benefits may be improving our lives in a non-market way. Now, every technology that changes how we live and work brings both promise and risk. Economists, nothing's free. AI is no exception. Fraud, disinformation, bias, and cyber sec cyber security threats are already emerging through the use of AI. Any tool powerful enough to improve lives can also be misused. The task for policy makers is to manage those risk without slowing the innovation that drives growth. History shows that adaption, not avoidance, is what sustains progress. Each wave of technology has disrupted industries and employment. But over time, it has lifted productivity, raised our real incomes, and improved our standard of living. Now, we see different approaches to managing the disruption that occurs with technological change. Europe has often chosen to regulate first to contain potential harms before the technology fully develops. The United States is taking a different path, leaning on its tradition of experimentation and market dynamism. That openness has long been the US's competitive advantage. It allowed the United States to leave in early waves of technology from the internet to advanced computing. And it will do the same with AI. Over time, that willingness to experiment has translated into faster productivity growth and stronger economic performance than many of our peers, including Europe. 30 years ago, the United States embraced a new and disruptive technology, the worldwide web. It seems so quaint now. Europe was more cautious, weighed down by regulation and legacy industries that sought to control this innovation. The result, of course, is that America led a global technological revolution that disrupted media and other industries, but also delivered jobs and broadly shared prosperity that handily outpaced the European Union over those 30 years. Perhaps the most important legacy of the American le innovation of network communications and commuting was the culture of entrepreneurship and innovation it fostered. One that has in fact contributed to America's leadership in AI. The American tradition is to event is to invent and make use of technology not shrink from it. Where there are risks, we take reasonable steps to mitigate them rather than to seek to avoid them altogether. Risk-taking is at the heart of our market economy. It fuels innovation and we must preserve it. Much like leaders in this audience, the Federal Reserve is also learning by doing. I have championed a systemwide approach to continually educate our teams and enable experimentation with the latest wave of innovations from large language models and agentic AI to applications and coding and payments. That's why on October f 21st, next Tuesday, mark your calendars, I'm convening industry leaders to discuss AI in payments as part of our payments innovation conference. These engagement combined with our own hands-on technical research allows us to apply these technologies within the Fed and to support innovation across the private sector. So to conclude, thank you for bearing with me. AI is moving faster than previous waves of innovation. That velocity means both the disruptions and the benefits will arrive sooner. The challenge is to keep pace, to help workers and firms adjust so the gains in efficiency translate into higher real wages and sustain growth across the economy. For policymakers, we must let the disruption occur and trust that the long run benefits will exceed any shortrun cost. Thank you very much. [applause] Guess I'll welcome you here. welcome to my uh office. Such a wonderful um and interesting conversation um uh also from the from the Fed. I mean just just the the tone uh the energy with which you're you're bringing to a novel technology is is very different. So we've had many regulators uh over the course of the day and one of the the common frames that I've always mentioned to them and as well to Travis Hill earlier I said it's kind of tough being a regulator and it's tough being a central banker. Uh you you uh get blamed when things go poorly but you never get credit when they go well and yet you are sitting here embracing this idea of allowing disruption to happen. Right. uh just as on almost a personal question. I mean like how do you get there to that point where where you know you're you're you're able to uh think uh about these issues. You know I I've I myself I I really identified you know I said I'm not a techno uh pessimist. I'm not a techno optimist. I'd like to think of myself as a techno pragmatist. you know, it's a it's a tough middle world, you know, to kind of live in and and but but how do you approach that that very challenging position that you're that you're in to push innovation forward uh uh in a constructive way? >> Yeah. So, being a regulator, you know, you're going to get blame when things go wrong and you're not going to get credit. That's the job. If you don't want that, don't take it, right? Nobody put a gun to my head and said do this. So, that's just part of the game. So when you sit down and for me in terms of think about regulation, it's like how do we do this in a way that improves our lives but kind of reduces the risk. I can't eliminate the risk. That's a bad idea. Like I I tease my European friends. That's what you guys do. You avoid all risk and then nothing ever changes and your standard of living never improve. So you have to take the risk. So as a regulator you have to take some risk too. You can't just try to regulate complete safety and stability or nothing happens. So that's a fine balance as a regulator to find that tradeoff in the right way and different policy makers are going to have different tradeoffs. I'm just more willing to say let it run. We've seen this through history. There'll be mistakes along the way, but then you fix them as they go, but don't kill the innovation. Don't kill these industries before they even get a chance to to walk. So, so embedded in that idea is that you have to watch the market um both from an economic standpoint, from a regulatory standpoint, see what works and to see what what doesn't. Um but central banks are not always viewed as catalysts of innovation. you know, they are they it's traditionally that's not normally how at least in the United States with the Fed. Uh folks have have have thought about the the the poise and the mindset of the of of the Fed. Um but that requires that an institution learns. How do you see learning as taking place in the next couple of years where you have so many technologies coming to market? Yeah. So, one of my jobs as a Fed governor is I oversee the US payment system, which includes all the payment services and functions that the Federal Reserve provides to the US economy. What we've seen the last 25 years has been a major change in in technology and payments. Something that was a very boring back office occupation has now become one of the coolest tech jobs in the world being involved in payments. So all that technological development and what we've seen come out of the DeFi crypto world which over the last four years was viewed as evil. Don't touch it. Don't talk about it. At the end of the day, it's just technology. Smart contracts, tokenization, blockchains, these are just technologies. If we can do payments in the traditional finance sector within the Fed walls better, faster, cheaper, safer with these technologies, then we need to learn how to use those technologies. And that is what we're doing right now. We are working how do we use smart contracts to help ourselves? How do we use zero knowledge proofs to do various things within our payment rails? So, we're experimenting. Maybe it works out, maybe it doesn't, but you've got to experiment and try. So that's been I guess the thing I have pushed is we need to stay up on technology, not be afraid of it, see where it leads us. Maybe it leads nowhere, but give it a shot and see what happens. Uh you mentioned just now tokenization. Um crypto and blockchain based on chain finance is uh a big topic obviously u both here today and and and and on the hill. And when you think about um or even beyond uh Genius, even beyond uh the the the Clarity Act, you know, what are the issues that are most relevant to the Fed um particularly in its oversight and and responsibilities? Um and do you see any overlap in terms of how you think about what is not knowable uh you know in in AI as you've already mentioned and and crypto? Well, in the crypto world, the the discussion about the assets, whether it's a security, whether it's commodity, all that, that's outside of my remit. That's somebody else's responsibility. Where it comes in is if we have to regulate banks and we have to say they're going to be involved in cryptotype assets or digital assets, then on the supervision side, we have to think about what rules you put in place on the banks in particular. But something like stablecoin, it's a payment instrument. In a way, it's diff no different than a debit card or a check. It's a way that people pay for things and that's how I vision envision stable coins coming into the US system. And in that sense, it's just part of the payment ecosystem, which again I oversee. So for me, the the problems in the payment system have been just what I said that there's large rents that have been collected by banks in particular, certain networks because they don't have any competition. And the beauty of stable coins is it brings a whole different set of payment rails, the crypto rails into play to possibly process payments in particular crossber payments. This is the most expensive time consuming type of payment we have in the world. Stable coins have already shown how to do this faster, more efficiently at a much lower cost. And it has driven competition among all the banks to improve their correspondent banking system and do their payments faster and cheaper. And I think we'll see that throughout the US. Whether stable coins become a big factor in our lives, it may not amount to a big share, but as long as it's there as a competitive threat, that's what we need. We need something as a competitive threat to keep everybody else keep their prices down, their cost down, and then that benefits all consumers. So, I I like to keep everything uh on a timely basis, but I I can't help but ask maybe a 30 second sort of last follow-up on your initial comments on the arc of productivity, technology, innovation, and and and employment. Um uh in part because we had uh the chief economist from LinkedIn and earlier and it was kind of very interesting sort of reciting many of the things that you've observed. Do you do you think that the adoption rate the disruption rate uh do you expect to see sort of cycles in which you sort of see on the one hand disruption and then sort of the job growth or the productivity growth as a lagging indicator or is this something that where where you think historically you see one pretty pretty quickly pushing the other? >> Well, I mean and you look back at the history of technological change in the US, it happened slower. So, as you could see jobs disappearing, you had more time to think about what new jobs came up. And it made for a easier transition from job losers to taking on new jobs. AI seems to be moving so fast that we'll see the job losses before we really see the new jobs. And that's what I think is fundamentally going to be different. It may be much more disruptive in terms of employment and jobs. It'll be year, you know, maybe down the road a couple more years before we really start seeing what new jobs come in to replace. And that's what's going to make this time, I think, different than past technological changes. And with that, I'll shut up. >> No, no, no. I I I really wish you wouldn't. Uh, unfortunately, our time is up, but but Governor, thank you for coming to your very first DC FinTech week. It was terrific. Uh, and and let's give Governor Waller an applause and a hand. [applause] >> Thank you. [music]