Kevin Warsh, a Federal Reserve governor, refrained from making definitive comments about future U.S. monetary policy or economic prospects during a panel discussion at the International Monetary Fund (IMF) annual meetings in Bangkok. His restraint contributed to a pullback in market bets on further rate hikes, while equity futures rose and the U.S. dollar weakened.
Warsh reiterated the Fed's commitment to price stability and referenced the September 25-basis-point rate increase — described in the article as the first such hike since 2023 — which was supported by all 19 members of the committee. He emphasized that he did not want to pre-commit to the outcomes of the remaining meetings this year, including the October 27–28 Federal Open Market Committee (FOMC) gathering.
Market moves and reactions
Investors reacted quickly: the probability priced in by markets for an October rate increase fell from about 27 percent to below 15 percent, according to the article. S&P 500 futures flipped into positive territory, and the dollar weakened. Derek Tang, an economist at Monetary Policy Analytics, said Warsh clearly did not intend to say anything that markets would interpret as further tightening.
Analyst expectations
Goldman Sachs’s economics team led by Jan Hatzius expects the Fed to pause in October and then implement the year’s final rate increase in December. At the same time, several FOMC members have signaled in recent weeks that further tightening might be needed, and the committee has time to gather more data before taking another step.
Warsh on artificial intelligence
Warsh also discussed artificial intelligence (AI), calling it one of the most important innovations of his lifetime while urging central-bank caution. He noted that AI is likely to affect the demand side of the economy first, before showing effects on supply, which could boost aggregate demand in the short term. From a central banking perspective, he said, this should be treated as a shock.
Other Fed officials have voiced similar concerns, suggesting that a surge in AI-related investment could contribute to economic overheating — a potential monetary policy risk.
Fed working group and public hearing
Warsh announced that the Fed’s working group on productivity and labor — which is examining the economic impacts of AI among other issues — will hold a public hearing on November 16 in the San Francisco Bay Area. That group is one of five working groups that will deliver proposals to the FOMC by the end of this year or in early 2027.
Editorial note
An AI assistant contributed to the preparation of this article; the final content was edited and verified by our journalist.
Tags: International Monetary Fund, Fed, monetary policy, artificial intelligence, rate hike, U.S. central bank, Goldman Sachs, Kevin Warsh, dollar, S&P 500
