Fed's Kevin Warsh: "AI Will Boost Productivity"... Mum on October Rate Hike

September CPI and other inflation data exceed expectations
Markets focus on possibility of further tightening
Pressure mounts ahead of November midterms

U.S. Federal Reserve (Fed) Chair Kevin Warsh expressed optimism that artificial intelligence (AI) will boost productivity and expand economic prosperity over the long term. However, he warned that the process would be "very bumpy" and that its short-term impact on employment remains uncertain.

Kevin Warsh, chair of the U.S. Federal Reserve (Fed), speaks at a press conference after the Federal Open Market Committee (FOMC) meeting on the 16th of last month (local time). AP-Yonhap News

Warsh made the remarks on Friday, October 16 (local time), during a conversation with International Monetary Fund (IMF) Managing Director Kristalina Georgieva at the IMF-World Bank Annual Meetings in Bangkok, Thailand, according to U.S. media outlets CNBC and The Wall Street Journal (WSJ).

"I hope you hear optimism from me. But it is optimism tempered by a serious sense of purpose," Warsh said. He added that, 10 years from now, people would look back on the present and say, "This had an enormously significant impact."

He struck a cautious tone on monetary policy. Warsh said the global economy had generally performed in line with the Fed's expectations since the rate hike last month.

Asked about the rate decision at the Federal Open Market Committee (FOMC) meeting scheduled for October 27-28, he said, "I don't prejudge the outcome of the meeting," adding, "It would not be appropriate to say now what decisions will be made at upcoming meetings." He emphasized, "The Fed has turned a new page. We don't do that anymore."

Warsh has said that investors should focus on economic conditions themselves rather than trying to anticipate the future direction of interest rates based on Fed officials' remarks. However, about two weeks ago, senior Fed officials signaled that they would not rush to raise rates again in October, sharply reducing the probability of an October rate hike priced into futures markets.

Last month, the Fed raised its benchmark interest rate to 3.75%-4.00%, its first rate hike since 2023. According to CME FedWatch, markets are pricing in a 72.3% probability that rates will remain unchanged this month. By contrast, expectations that the Fed will raise rates by another 0.25 percentage point in December are dominant.

Recently released inflation data have heightened market concerns. The U.S. core consumer price index (CPI) rose 0.33% month over month in September, marking a second consecutive month of elevated increases. Producer price data released on October 15 also came in strong, drawing attention to the possibility of further Fed tightening.

The FOMC meeting will take place less than a week before the U.S. midterm elections on November 3. The WSJ noted that either a rate hike or a hold could spark political controversy.

Meanwhile, Warsh said he will hold an in-person hearing in the San Francisco Bay Area on November 16 to discuss AI's effects on productivity and employment. In June, Warsh formed five task forces of outside experts to study key areas related to monetary policy. The task forces are expected to submit policy recommendations to the Fed by the end of this year.

This content was produced with the assistance of AI translation services.