The Reserve Bank of Australia (RBA) Governor Michele Bullock has expressed caution about the potential for artificial intelligence (AI) to create a financial bubble, noting that there is currently no clear evidence that it is boosting economic efficiency. This comes as the Australian government, led by Prime Minister Anthony Albanese, promotes AI as a key solution to the nation's economic challenges. Ahead of a potential interest rate increase, Bullock also highlighted that the recent decline in house prices is among the most severe in Australia’s recent history. Meanwhile, rising oil prices and inflation are affecting markets globally, though U.S. tech stocks saw a strong rebound after Meta, the parent company of Facebook, introduced its new AI tool called Muse, which led to an 11% jump in its share price. Speaking at a Sydney event hosted by the Centre for Independent Studies (CEDA), Bullock warned that a sharp decline in the value of tech companies could negatively impact economic activity. “All central banks are a little bit worried about that,” she said, acknowledging that opinions are divided on whether AI is a bubble or a breakthrough. While many believe AI could be the key to boosting productivity, the RBA and other central banks have observed little evidence of this so far. In fact, the rapid growth of data centers and other AI-related investments has contributed to inflation rather than easing it. Research from South Korea’s central bank suggested that workers using AI often produce the same amount of output but work 1.5 hours less per week, potentially slowing productivity growth. The Australian government’s recent economic report, which projects a significant rise in per-person economic activity by 2066, relies heavily on the assumption that AI will bring a “profound” boost to productivity. The report estimates that inflation-adjusted economic activity per person will rise from $99,200 today to $157,300 by 2066. However, economists have questioned whether the assumed 1.2% annual productivity growth is realistic, noting that if growth only reaches 0.8%, the projected figure would be much lower. Bullock acknowledged these concerns, saying that while the goal of achieving higher productivity is ambitious, it is still a target worth pursuing. Regarding the housing market, Bullock emphasized that immigration has been a major driver of Australia’s recent economic growth. While new arrivals do not typically contribute to inflation due to their strong work ethic and spending, they have not helped ease the housing crisis. New immigrants do not immediately increase housing supply, leading to pressure on prices. This has led to calls from political groups like One Nation for a reduction in migration, while the Labor government plans to tighten existing immigration policies to address the housing crisis. Home affairs minister Tony Burke warned that severe cuts to immigration could harm the economy. House prices have fallen 3.1% over the past three months following rate hikes and changes to tax policies for property investors. Bullock noted that home loan approvals have dropped significantly, particularly for investors, and described the current housing market decline as a “slight dip” after a long period of growth. However, she did not comment on whether an interest rate increase would occur next week, though financial markets are betting heavily on a rise.