Prudent to hold interest rates steady and await more clarity on what the Fed should do nextPace and uncertainty of changes around AI have made a lot of Fed officials 'uneasy'War, fast changes due to artificial intelligence have again clouded economic outlookEven before oil shock, progress on inflation was at risk of stallingHigher gasoline prices hit consumer sentiment, can crowd out other spendingSays he will be watching inflation and expectations data carefullyDemand has been steady but continues to feel 'narrow,' based on AI investment and wealthier householdsUnemployment is low, but labor market feels 'fragile,' firms see little wage pressure, multiple applicants for each job'Fog' again obscuring economic outlookRichmond Fed President Tom Barkin is out with a speech that leans heavily on a fog metaphor he first used a year ago — and he's not ready to retire it. Barkin painted a picture of an economy that's still moving forward but where visibility has gotten worse, not better. He pointed to AI disruption, the Iran-related oil spike, and lingering policy uncertainty as forces that have deepened the haze around the outlook and On the surface, the numbers look fine. GDP grew 2% last year, unemployment is hovering around 4.4%, and consumers are still swiping their cards. But Barkin made clear that the headline figures mask a fragility underneath. Job growth is essentially zero, and the only reason unemployment hasn't climbed is because fewer people are entering the workforce through reduced migration and boomer retirements.The demand picture is what stands out as particularly vulnerable. Barkin described strength as "narrow," concentrated in AI-related investment and spending by wealthier households — and he connected those two dots explicitly. An AI pullback would hit business investment and equities, which would then drag down consumption from the wealthy. It's a feedback loop that doesn't have a lot of redundancy built in.On inflation, he acknowledged progress but flagged that recent PCE data suggest things may be stalling — and that was before the oil shock hit. He rattled off a list of supply-side cost pressures since the pandemic that reads like a greatest hits of stagflationary impulses.On policy, Barkin backed the decision to hold rates and wait for clarity. He described the current fed funds rate as sitting at the higher end of the neutral range, which leaves room to move in either direction. But nothing in this speech suggests he's in any rush. The fog, as he sees it, hasn't burned off — and until it does, the Fed is content to sit in the car with the hazards on.Quotable:On the labor market: "Employers tell us that labor is freely available with multiple applicants for every position. They face very little wage pressure." On AI and hiring: "Even where demand is solid, employers are still reluctant to hire in the context of strong productivity, high uncertainty, and the potential impact of AI." The market is pricing in a 40% chance of a Fed hike in October or earlier. This article was written by Adam Button at investinglive.com.