Warsh offers no fresh signals on interest rates

Federal Reserve Chair Kevin Warsh declined Friday to predict central bank officials’ future course on interest rates, less than two weeks before they meet to discuss monetary policy. 

“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,” Warsh told Kristalina Georgieva, managing director of the International Monetary Fund (IMF), in Bangkok, Thailand.

Officials on the Federal Open Market Committee (FOMC), including Warsh, voted unanimously last month to raise interest rates by a quarter point to a range of 3.75 percent to 4 percent.

After that vote, Warsh said the hike was an attempt to tame inflation, which has exceeded the Fed’s 2 percent target for more than five years.

Yet Warsh has taken a cautious approach toward issuing forward guidance during his five months leading the central bank, a stance he argues will allow markets to operate according to indicators from the economy, not the Fed. 

“It’s a new chapter at the Fed and … we’re not in that business anymore,” Warsh told Georgieva, referring to forecasting future decisions. 

Georgieva then quipped that the Fed chair “just disappointed half of the audience, or more,” to laughs from the crowd at the annual meetings of the IMF and World Bank Group.

Multiple FOMC officials have recently indicated that additional rate hikes are on the way, while acknowledging they must evaluate incoming economic data. The panel will meet Oct. 27-28 and release its rates decision on the latter day.

Fed board member Christopher Waller said last week he anticipates future rate hikes “if the economic data continue to come in” as he expects.

“But there is some flexibility about when those hikes will occur,” he said at the Istanbul Economic Forum in Turkey. 

Waller made those comments before the Bureau of Labor Statistics reported that annual inflation was 3.7 percent in September, 0.3 percentage points higher than it was in August.

Energy price pressures due to the Iran war and Russia-Ukraine conflict remain. A gallon of regular gas in the U.S. costs roughly $4.33 on average as of Friday, according to AAA.

Rising demand for artificial intelligence models and data centers is also pushing up inflation, as Warsh acknowledged in Thailand. The Fed chair said the advent of AI is “probably the most consequential change” to the U.S. and global economies of his lifetime. 

In the medium term, Warsh predicted AI would spur a “positive supply shock,” increasing productivity and wealth for countries that “put it to good use.”

The Fed chair added, “The path from where we are to there is likely to be a very bumpy one. Bumpy in our understanding of the technology, bumpy because we really don’t know what the market structure’s going to be of these new technologies.”