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Original headline: AI most consequential change to US and global economies in my lifetime : Fed Chair Kevin Warsh
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- Fed Warsh says AI most consequential change to economy in his lifetime
Warsh said at the IMF-World Bank Annual Meetings in Bangkok that AI is probably the most consequential change to the US and global economy in his lifetime. He said the AI investment boom would push prices up in the short term through demand effects, but expected a positive supply-side shock in the long run and large benefits to the global and US economies over time. He said the Fed expects to use AI to analyse data better in conducting monetary policy, and that countries that put the technology to good use would become more productive. He cautioned that the path ahead would be very bumpy, given uncertainty about how the technology will be understood and how its market structure will evolve.
- Fed Chair Kevin Warsh and the FOMC Just Fired a Warning Shot at the Second-Priciest Stock Market in History
On Sept. 16, Fed Chair Kevin Warsh and 11 other voting FOMC members unanimously raised the federal funds rate by 25 basis points to 3.75%-4.00%, the fourth time this century the central bank has started a rate-hiking cycle. Persistent inflation drove the move: August was the 66th consecutive month with annualized inflation above the 2% target, and the minutes cited tariffs, the Iran war and AI infrastructure spending as key sources. Most participants saw another rate increase by year-end as likely appropriate. The article argues this is a risk for a historically expensive stock market, noting that the S&P 500's Shiller P/E came close in June to the highest level in 156 years, reached just before the dot-com bubble burst, and that higher borrowing costs could slow AI expansion partly financed with debt.
- Fed Chair Kevin Warsh warns of AI shock for economy , pledges to contain inflation
- Fed Chair Kevin Warsh warns of AI shock , pledges to contain inflation
Fed Chair Kevin Warsh warned at an IMF conference in Bangkok that surging AI spending could act as a 'shock' to the U.S. economy by boosting demand before supply catches up, and pledged to contain price increases. He said the technology should eventually generate productivity and wealth, but the path there would be very bumpy, and he also flagged shocks from war and military conflict, including the Iran war that began in February and drove oil prices sharply higher. U.S. inflation rose 3.7% in September, a four-month high and more than a point above the Fed's 2% target, and the Fed raised rates a quarter point that month, its first increase since 2023. Warsh declined to forecast the Oct. 28 meeting, and CME FedWatch data showed investors put about 86% odds on rates being held steady, up from about 55% on Wednesday.
- LIVE NOW : IMF Chief Georgieva , Fed Chair Warsh Discuss Forces Reshaping Global Economy
- Analysis: Everyone expects the Fed to hold rates in October. Kevin Warsh could surprise us all
Traders overwhelmingly expect the Federal Reserve to hold rates at its October meeting, with futures pricing only a 15% chance of a hike. The author argues this complacency may be risky, since Chair Kevin Warsh has rejected the convention of signaling decisions in advance and has left room to hike, while recent remarks from Vice Chair Philip Jefferson and New York Fed President John Williams, who see little urgency to raise rates, may no longer reliably reflect his views. Inflation data is hot, with CPI up 3.7% and PPI up 6.3% year over year, implying core PCE around 3.1%, above the 2% target that Warsh has called a firm, fixed goal. Surprising markets with a hike would risk volatility, though the article notes that financial conditions remain loose overall.
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