Fed's Warsh Won't Prejudge October and December Rate Calls

Federal Reserve Chairman Kevin Warsh refused on Friday to signal what the U.S. central bank will do about interest rates at its October and December meetings.

The stakes are concrete. The Fed raised its key rate by a quarter-point to about 3.9% in September. That was its first increase in three years. Stubbornly elevated inflation will likely push officials to hike again in coming months, according to Fed guidance, to slow spending and cool prices.

Warsh spoke at a "fireside chat" with International Monetary Fund Managing Director Kristalina Georgieva. The setting was a gathering of financial leaders in Bangkok, where the global surge in prices sits at the top of the agenda.

"At the Federal Reserve, we made very clear that we would deliver price stability, and we removed a dose of accommodation about a month ago," Warsh said. "I don't prejudge meetings. I don't believe in saying now what I might do at the meetings that we have in the balance of this year."

What does the silence mean for markets?

Warsh gave no fresh signal on the rate path. But the Fed's own paperwork does the talking. Minutes from the most recent meeting show most Fed officials expect another rate increase will likely be needed this year.

Each hike raises borrowing costs over time for mortgages, car loans, and credit cards. That transmission channel is the mechanism Warsh declined to confirm on stage in Bangkok, even as his colleagues' minutes point one way.

How does Trump fit in?

The September hike defied President Donald Trump's repeated calls for the Fed to cut rates. Trump criticized the Fed's rate-setting committee. He still voiced support for Warsh, whom he appointed earlier this year.

That leaves the Fed chair in an unusual position: hiking into presidential pressure while keeping the confidence of the man who appointed him.

Why does Warsh blame part of inflation on AI?

Warsh named the investment surge driven by the craze for artificial intelligence as one of the factors behind higher inflation. The Fed's task force on AI-related issues will meet Nov. 16.

"I'd say the advent of this new technology is probably the most consequential change to the U.S. and the global economy in my lifetime to this point," he said.

He drew a sharp line between AI and other price shocks. Military conflict and similar disruptions drive prices higher and leave it there. AI, in his view, will bring "huge benefit" to the world economy in time.

Could AI fix the Fed's forecasting problem?

Warsh spent the most vivid part of his remarks on how central bankers work. Fed economists struggle to foresee the future using data that lags behind today's realities. He argued AI could become a vital tool for that job.

"We torture data with old fashioned models to try to find out what's underlying inflation trends. Not so long from now, it won't be torture. We will have access at the fingertips of central banks to all the information in the world, and we'll be able to use new analytical tools to distill that data," he said.

The line matters beyond rhetoric. If the Fed's Nov. 16 task force meeting maps how the central bank adopts those tools, rate decisions could rest on faster, richer data than the lagging models that guided September's quarter-point hike.

By Daniel Okafor