As AI wealth floods in and the city prepares for IPOs from OpenAI and Anthropic, there are two words that Mary C. Daly, president and CEO of the San Francisco Federal Reserve, avoids like the plague: “recession” and “bubble.”

“There’s two words I do not use, and I’m not saying them,” Daly said, when questioned onstage Thursday at the Bloomberg Tech Conference in San Francisco about whether the city is in the midst of an AI bubble. “One of them is that word. The other one starts with an R.”

Macroeconomic policymakers try to avoid stoking fears with the word “recession,” but Daly went further, equating AI bubble theories with the extreme doomerist view that the technology will “destroy everything.”

“I just would caution all of us from staying at these extremes,” she said. “Because the hard work, the work that is going to determine what our future looks like with this technology, is all in the middle.”

AI has added complications to the Fed’s mission of full employment and contained inflation. Addressing an audience of tech executives and bankers, Daly said that while inflation is a concern, the fears are overblown. 

The Fed generally tries to keep inflation around 2%, a challenge hindered by tariffs, according to Daly. In April, the last reported data from the Bureau of Labor Statistics, consumer inflation was up 3.8% (opens in new tab) year-over-year in the San Francisco area. 

An influx of residents drawn by the AI boom has sharply raised the cost of living in San Francisco. Rent in the city is 105% higher than the national median and has gone up about 30% in two years, according to Zumper (opens in new tab). 

The rise of AI has also caused mass anxiety about the future of tech jobs, particularly for software engineers. 

“There could be this idea that maybe the job market won’t be as robust as it’s been in the past, because AI will do so much,” Daly said. “So far, we have seen mostly generative AI being used to augment the workforce, rather than replace the workforce.”

Several tech companies in San Francisco, including Block and Meta, have blamed AI for layoffs of thousands of employees.

Daly compared the current level of AI adoption to the early days of electricity, long before it led to rapid growth in productivity and economic development. 

The challenge, she said, is ensuring the economy remains stable enough that people aren’t left behind as AI reshapes work and wealth.

“If you look back on history and you wonder why did technologies have a negative outcome on society when, over time, they had a positive outcome — electrification — it’s often because the people who were being displaced didn’t have an opportunity to grab another rung.”