While AI is expected to be disinflationary long-term, its immediate impact is inflationary. Massive investment in data centers and chips drives up demand and prices for those goods. This demand-side pressure, plus wealth effects from the AI stock rally, currently outweighs any supply-side productivity benefits.

For central bankers, AI presents a paradox. While it's disinflationary in the long run via productivity, it's inflationary now. The massive investment in infrastructure and the wealth effects from AI stocks are juicing demand today, while the supply-side benefits will only materialize later, creating a near-term policy challenge.

AI is not a great equalizer; it's a productivity multiplier for those who are already highly skilled. A top-tier engineer or writer can double or triple their output, while an average performer sees smaller gains. This dynamic is set to exacerbate the K-shaped economy, making the rich richer and the poor comparatively poorer.

The immediate impact of AI is job displacement for entry-level roles and a widening wealth gap between those who can leverage the technology and those who can't. While the long-term promise is abundance, society must first navigate a difficult period where AI makes life harder for a significant portion of the population.

Like past technological leaps, AI's economic impact will be sequenced. Expect immediate real income gains as new products emerge. The broader disinflationary effects from productivity improvements will only materialize later, after businesses fully re-engineer their operations.

AI's impact on inequality is dual-faceted. It may reduce the wage gap by automating high-skill jobs faster than low-skill ones. However, it simultaneously increases wealth inequality by concentrating massive capital gains within a few dominant tech companies, benefiting asset owners disproportionately.

In a high-impact AI scenario, massive productivity growth leads to gluts of goods and services. This causes prices to collapse, creating massive deflation. This deflation acts as a universal pay raise, dramatically increasing everyone's real wealth and purchasing power.

A key driver of future AI-fueled inequality is that most people hold their wealth in their homes. Unlike financial assets, home equity provides no direct exposure to the massive productivity gains and capital returns generated by automation. This structural issue means the benefits of AI will disproportionately flow to capital holders.

Even if AI drives productivity, it may not fuel broad economic growth. The benefits are expected to be narrowly distributed, boosting stock values for the wealthy rather than wages for the average worker. This wealth effect has diminishing returns and won't offset weaker spending from the middle class.