AI-generated illustration

Federal Reserve Chair Kevin Warsh declined to signal what the US central bank might do at its remaining meetings this year, saying the Fed has made its commitment to price stability clear and has already trimmed its supportive policy stance. Warsh spoke at the International Monetary Fund and World Bank annual meetings in Bangkok in a conversation moderated by IMF Managing Director Kristalina Georgieva.

Warsh also discussed the global economy, the investment surge in the United States and the effects of artificial intelligence, which the Fed chair described as probably the most important economic change of a lifetime and, in the medium term, a positive supply shock.

Structural growth replaces stagnation fears

Warsh said expectations of a long economic slump, which were widely debated in the past, have given way to structural growth and a strong rise in investment. "Although it does not affect every country to the same extent, we are seeing a tremendous increase in investment in the United States," Warsh said.

Good policy matters for that increase, Warsh said, arguing that sound macroeconomic policy combined with strong microeconomic foundations can drive investment higher. Warsh called the rise in investment one of the most positive developments in the global economy.

No forward guidance on policy

Warsh said meetings with officials from other central banks included assessments of price increases, which affect each country differently. "We have made it very clear as the Fed that we will deliver price stability, and about a month ago we pulled back the supportive stance in monetary policy to some degree," Warsh said.

Warsh avoided any guidance on future decisions. "I do not prejudge the meetings. I do not think it is right to say anything now about what I may do at our meetings for the rest of this year," Warsh said, adding that a new era has begun at the Fed and that the institution no longer acts the way it once did.

AI seen as a medium-term positive supply shock

Asked by Georgieva about the effects of artificial intelligence on monetary policy, Warsh said the arrival of the new technology is probably the most important change for the US and global economies within Warsh's own lifetime. Warsh said AI affects the demand side of the economy first, while its supply-side effects will emerge over time.

Central banks need to account for that transformation in line with their goals of price stability and maximum employment, Warsh said. "You have to recognize it as a shock, but in the medium term this is a positive supply shock," Warsh said.

AI could reshape how policy is made

Warsh said AI is likely to raise productivity and help countries generate more prosperity, and could significantly change how central banks analyze economic data. "I think it will also fundamentally change the way monetary policy is conducted," Warsh said.

One of the five working groups created to improve how monetary policy is carried out focuses on productivity and employment, Warsh recalled. That group will hold its first field session on November 16 in the Bay Area, where the issues will be discussed.

Inflation is not unique to the United States

Warsh said the US economy has many drivers of strength and resilience, and that the same momentum is not present everywhere. The global economy has shown more resilience than Warsh expected, with G20 economies in good condition given geopolitical developments and crisis points.

Inflation is not unique to the United States and each central bank is doing what needs to be done, Warsh said. "I can say that I have seen the determination of my colleagues around the world to deliver price stability, and I have absolutely shown that determination too," Warsh said.

Key takeaways

• Fed Chair Kevin Warsh said the central bank has made its commitment to price stability clear and trimmed its supportive policy stance about a month ago.
• Warsh declined to preview decisions at the Fed's remaining meetings this year and said the central bank has entered a new era.
• Artificial intelligence was described as probably the most important economic change of Warsh's lifetime and, in the medium term, a positive supply shock.
• Warsh said inflation is not unique to the US and that central banks worldwide are committed to price stability.