Monetary Policy in a World of AI, Robotics and Bitcoin

This month at CES 2025, Elon Musk had a virtual conversation with investor Bill Miller. As in most of his recent interviews, Musk was asked to describe the future of advancements in AI. He painted a vivid picture of a rapidly approaching future, propelled by the twin engines of artificial intelligence and robotics. He stressed the insane speed of AI development, stating confidently, "AI will be able to do any cognitive task... within, I'd say, three or four years maximum." He went on to say that this rapidly approaching reality is now forcing a reliance on synthetic data for AI training, as "we've now exhausted all of the… cumulative sum of human knowledge." This is where you should pause, take in that comment, and think about what it means before you move on.

This sentiment was echoed at the same event in the keynote speech by NVIDIA CEO Jensen Huang, who declared that "humanity will produce more data than all of humanity has ever produced" in the coming years, further emphasizing the need for new approaches to fuel AI's insatiable appetite for information.

Beyond AI's cognitive capabilities, Musk talked about the rise of humanoid robots, predicting they will become "the biggest product ever in history by far," with Tesla aiming to produce hundreds of thousands in the near future. He envisions a world where these robots seamlessly integrate into our lives, assisting with everyday tasks and revolutionizing industries. "Every human is going to want one," Musk declared, "most likely, and some will want two." Huang, too, recognized the dawn of this new era, stating that "the ChatGPT moment for general robotics is just around the corner." Again, you have to pause and think about a world where you are interacting with robots in less than four years. It is only four years ago we were going through a second wave of Covid.

Musk also spoke about how his vision extends beyond Earth, with plans for uncrewed missions to Mars within two years, paving the way for a self-sustaining colony. "The goal has to be to get to the point where Mars is self-sustaining," Musk asserted, emphasizing the importance of becoming a multi-planetary species. He also touched on Neuralink's advancements, stating that they are "trying to enable people who have lost their brain-body connection," offering hope for those with paralysis and blindness. Huang, meanwhile, highlighted the critical role of AI in pushing the boundaries of other fields, from drug discovery to autonomous vehicles, stating that "the applications are just completely endless."

Universal High Income and Rethinking Prosperity

Elon Musk believes that advanced AI and automation will also unlock a future of what he called "Universal High Income," where productivity is so high that scarcity becomes irrelevant. As I have described in prior posts, in a world of abundance essential goods and services would be abundant and readily available, allowing everyone to enjoy a high standard of living. Work would become optional, freeing people to pursue passions and leisure, while economic equality would be ensured through a universal basic income. This concept is a scary thought that challenges us to rethink the future of work and prosperity, prompting consideration of a world where technology liberates us from scarcity and allows us to focus on human flourishing. However, it also raises questions about implementation, motivation, resource management, and ethical considerations in such a transformed society.

Throughout the discussion, Musk's message was clear: embrace the future with optimism while acknowledging the challenges. He urged proactive measures to manage the economic and societal impacts of these technologies, emphasizing the need for reskilling and adaptation. "I would encourage people to be optimistic about the future," he concluded. "I think it is much more likely to be good than bad." His words serve as both a call to action and a reminder of the incredible potential that lies ahead. Huang reinforced this optimism, highlighting the transformative power of AI to revolutionize industries and solve complex problems, stating that "intelligence is the most valuable asset that we have."

Macro Perspectives: Ignoring the Elephant in the Room

When watching these videos, I try to think about what happens to the world of economics and investing we know. This is why I spend most of my time on podcasts with AI and Bitcoin to help understand the world that is coming listening to people talking about how they see it. However, I also need to spend some time with podcasts involving traditional well respected macro strategists. However, as I highlighted on my most recent YouTube video, it is getting more challenging. These discussions almost always avoid talking about anything regarding AI and robotics. They are dominated by statistics from a time when the global economy was entirely about human beings focused on business cycles when there were cords on dumbphones. How can talking about a PMI below 50 for two years with rising credit card, CRE and auto delinquencies matter when stocks are up 50% in those two years and credit spreads are at all time tights. I believe in the wisdom of crowds with regards to markets and pulling out stats to support your story without this insane world of innovation is crazy to me.

Normally, when they are asked about the stock market, credit spreads, AI, robotics or Bitcoin, they are usually quickly brushed aside with an offhand comment about them being a bubble which “we” have all seen many times before. “We” know a bubble when we see one. In my opinion, calling AI, robotics and Bitcoin "bubbles” without investing the time to understand them is likely a defense mechanism. It allows individuals to simplify the narrative, avoid challenging their existing beliefs—on which their reputation, income, or clicks depend—and protect their ego by dismissing innovation as unsustainable rather than transformative. In addition, my favorite part is they inevitably say, once the fall happens, it will be a great time to buy. This is the way the world of cycles of the past worked. Now, if we do get a sharp fall like in 2020 or even with SVB in 2023, the rally back happens too fast and nobody gets the chance to buy.

After living through the recent software boom of 2009–2019, when the economy changed rapidly and stocks powered higher despite repeated recession predictions, you would think AI and robotics would at least spark curiosity among some of these macro analysts on these podcasts. The fact that the smartest and largest technology companies in the world are spending hundreds of billions on these technologies should be a compelling reason to research and discuss them. At this point with the greatest minds telling us it is here now, I just don’t understand the value of listening to an hour of someone speak about the world of economics and investing and not yet have an informed position on AI, robotics and Bitcoin. The irony for me is that I do think all this insane spending by the Mag7 will lead to something bad but for them. I believe it will eventually speed up their on demise from the competition for all aspects of the economy slowly eating away at their revenues. Cyan Banister, an angel investor, on the All-In Podcast this week described seeing this competition due to AI in the startup world already saying:

“I actually think we're going to see a Cambrian explosion of creativity and and development of different things and some of them are going to be stupid ideas and some of them are going to be great but I think it's going to make our job especially at the seed stage of investing harder and harder. There's going to be so many there's just going to be a lot of people that have similar ideas at the same time that can execute quickly and and do things that break neck speeds that they've never been able to do before and um you know picking the winner is going to be hard to figure out it's going to be harder and harder.”

In doubting Elon Musk you are not only doubting his success, he is now also in the early days of a new presidency in which he has a major role, outlining a future that feels both exhilarating and daunting. He will impact the future not only as a creator but not have a voice in policy as well. I can’t help but think about how the macroeconomic forecast will look at the end of this presidency. To conclude this paper, I thought it would be fun to fast-forward four years and imagine the cutting edge group of the Federal Open Market Committee wrestling with economic realities shaped by these very forces on the eve of the next presidential transition. Instead of talking about what the future may look like, the decisions they make during that time will navigate a world where AI, robots, and the digital economy have fundamentally reshaped the very fabric of labor, finance, and human existence.

I decided it would be fun to finish with a hypothetical FOMC press release to offer a glimpse into this not-so-distant future, where the pace of change challenges our very understanding of the world around us.

Federal Open Market Committee (FOMC) Press Release

January 29, 2029

Recognizing the unprecedented technological shifts impacting the global economy and considering the average age of Committee members is 64, the FOMC has utilized AI-voice powered analytical tools to enhance its understanding of these complex dynamics and inform its policy decisions as well as helping prepare the text so lunch can go longer and we can squeeze in a nap. Going forward, a humanoid robot of Alan Greenspan will do the press conference.

The Federal Open Market Committee (FOMC) decided today to lower the target range for the federal funds rate by 50 basis points to 1.00-1.25 percent. This action reflects the Committee's ongoing assessment of evolving economic conditions in light of the transformative technological advancements impacting the labor market and overall economy.

Economic Outlook

Recent indicators suggest that the US economy is undergoing a period of significant structural change driven by the rapid adoption of artificial intelligence (AI) and humanoid robots across various sectors. While these technologies have driven massive productivity gains and continued economic expansion, the transition is creating near-term challenges in the labor market.

The unemployment rate has risen to 6.8 percent, reflecting displacement in sectors where AI and automation are being rapidly implemented. This trend is particularly pronounced in manufacturing, transportation, and customer service, where humanoid robots and AI-powered systems are assuming tasks previously performed by human workers.

Adding to this dynamic landscape, the burgeoning space economy, fueled by the colonization of Mars is contributing to new avenues of economic growth and job creation. Investments in space infrastructure, research and development, and interplanetary commerce are generating positive spillovers across various sectors of the US economy.

Integrating Humanoid Labor:

The Committee recognizes the growing presence of humanoid robots in the workforce and the need to integrate them into traditional economic metrics. Going forward, the Bureau of Labor Statistics (BLS) will begin incorporating humanoid robot labor force participation rates into its monthly employment reports. This will provide a more comprehensive picture of the evolving labor market and inform policy decisions.

To further refine its understanding of labor dynamics in this new era, the Committee is exploring the development of a "Humanoid SAHM Rule" (SAHM referring to "Stay-at-Home Manufacturer"). This new metric will aim to assess the impact of humanoid robots on household production and consumption patterns, providing valuable insights for future monetary policy decisions.

The Rise of the Digital Economy and Bitcoin's Ascendancy:

The Committee acknowledges the rapid growth of the digital economy, fueled by AI agents and the increasing tokenization of real-world assets. Stablecoins, pegged to fiat currencies, are increasingly utilized for everyday transactions within the digital economy, providing the necessary stability and liquidity for efficient commerce. This paradigm shift is redefining commerce and challenging the traditional boundaries of monetary policy.

As digital transactions, powered by AI agents, continue to proliferate, a significant portion of economic activity is migrating to this new digital realm. This trend is accompanied by a growing preference for digital assets, with Bitcoin emerging as the largest and safest store of value in this evolving landscape.

Committee's Assessment

The FOMC recognizes the complex interplay of factors shaping the current economic landscape. While AI and robotics promise to revolutionize productivity and unlock new avenues for growth, the Committee is mindful of the challenges posed by labor displacement and the need to ensure a smooth transition for the workforce.

Furthermore, the Committee acknowledges the growing influence of the digital economy and the role of digital assets like Bitcoin. Understanding the implications of these developments for monetary policy and financial stability remains a key priority.

The Committee judges that a further easing of monetary policy is warranted to support economic activity and facilitate the ongoing structural adjustments. The lower target range for the federal funds rate will help maintain accommodative financial conditions, encouraging investment and supporting consumer spending.

Forward Guidance

The Committee will continue to monitor incoming economic data, including labor market conditions, inflation pressures, technological developments, and the evolving role of the digital economy and digital assets, to assess the appropriate stance of monetary policy. The FOMC remains committed to its dual mandate of maximum employment and price stability and stands ready to adjust policy as necessary to achieve these goals.

Voting for the monetary policy action were:

* Jerome H. Powell, Chair

* Lael Brainard, Vice Chair

* Michelle W. Bowman

* Lisa D. Cook

* Philip N. Jefferson

* Neel Kashkari

* Lorie K. Logan

* Christopher J. Waller

* John C. Williams

Implementation Note:

This change in the target range for the federal funds rate will be implemented immediately through open market operations. The Federal Reserve will continue to monitor market conditions and adjust operations as needed to maintain the federal funds rate within the target range.

Welcome to the future!