Fed's Warsh calls AI a 'positive shock' but vows price stability as inflation stays stubborn

Kevin Warsh used his last scheduled public remarks before a Federal Reserve communications blackout to deliver a pointed message: the central bank will 'deliver price stability,' full stop — even as a surge of artificial-intelligence investment reshapes the economy in ways that are pushing prices higher right now and will remain disruptive for years to come.

Warsh spoke Friday in Bangkok before a standing-room-only crowd at the annual meetings of the International Monetary Fund and World Bank, in conversation with IMF Managing Director Kristalina Georgieva. The appearance was his final opportunity to shape market expectations before the Fed enters its blackout period Saturday, ahead of a policy meeting on Oct. 27–28.

The advent of this new technology is probably the most consequential change in the U.S. and the global economy in my lifetime.— Kevin Warsh, Federal Reserve Chairman

Unlike geopolitical tensions — including escalating violence in the Middle East — AI is a 'positive shock,' Warsh said. But he was clear that positive does not mean painless. AI investment is 'hitting the demand side of the economy before it's going to hit the supply side,' he said, creating near-term upward pressure on prices even as it promises longer-run productivity gains and wealth creation.

It's obviously hitting the demand side of the economy before it's going to hit the supply side of the economy. We don't know in the next 12 or 18 months its effect on employment, but if you believe like I believe, which is it will make economies and countries that put it to good use more productive, that it's going to make it so that we will have more wealth, then that has to be a very good thing.— Kevin Warsh, Federal Reserve Chairman

The path to those gains, he warned, 'is likely to be a very bumpy one.' A Fed task force examining AI's impact on productivity and jobs will hold a public 'field hearing' in the San Francisco Bay Area on Nov. 16, according to the Globe and Mail — the first public glimpse of that group's work.

The Bangkok remarks came days after new inflation data showed price pressures accelerating. Overall U.S. prices rose 0.6 percent in September — the largest monthly increase in five months — leaving the year-over-year rate at 3.7 percent. Wholesale prices also rose, and retail sales figures showed consumers continuing to spend. The IMF projects U.S. inflation will not return to the Fed's 2 percent target until mid-2028, according to the New York Times.

That backdrop has put pressure on the Fed's next move. In September, policymakers voted unanimously to raise rates by a quarter of a percentage point, lifting the target range to 3.75 percent to 4 percent. Most officials at that time projected one more quarter-point increase before year's end. The hotter-than-expected September data has since fueled speculation that the central bank may need to move more quickly.

San Francisco Fed President Beth Daily said Thursday she was increasingly concerned about inflation's 'persistence,' while Cleveland Fed President Beth Hammack told business leaders that inflation expectations might require 'more' from the Fed, according to the New York Times. Financial markets, however, are still betting the Fed will wait until December to raise rates again, according to the Globe and Mail — a view Warsh's deliberate silence on near-term policy left undisturbed.

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.— Kevin Warsh, Federal Reserve Chairman

Georgieva, speaking just before Warsh, had already set the tone, warning of inflation pressures and calling on central banks to keep a tight rein on monetary policy. She welcomed what she described as 'firm language' from the Fed and its peers.

Rate hikes today are better than falling behind the curve.— Kristalina Georgieva, IMF Managing Director

Warsh described a 'synchronous tightening' of monetary policy across most of the world, saying it meant 'there's no free riders.' He expressed surprise at how well global economies had held up — 'showing resilience that I'm not sure I would have predicted five or six months ago' — and said a broadening of the investment surge beyond AI was giving the U.S. economy 'plenty of tailwinds.'

The Fed meeting on Oct. 27–28 falls just days before midterm elections that will determine whether Republicans retain control of Congress. Warsh has made taming inflation his top priority since taking the chairmanship in May, and has sought to recast how the central bank approaches decisions — stressing economic trends over individual data releases and stepping back from the practice of guiding expectations about future moves. He has launched five internal task forces examining issues from Fed communications to how it measures inflation.

The political backdrop remains charged. President Trump, who handpicked Warsh for the role, has largely spared him from the criticism he has directed at other Fed board members. Trump is currently engaged in a legal fight with Governor Lisa D. Cook, whom he has tried to fire for over a year over allegations of mortgage fraud; the White House last week announced an investigation into Cook, culminating in an in-person hearing she was directed to attend, according to the New York Times.

Warsh made a point of defending the institution. 'Power comes from our institutional credibility, bestowed on me by the great chairmen that came before me,' he said. He also noted that AI could transform the Fed's own analytical work — 'a big deal for central banks,' in his words — and closed on a note of qualified optimism.

I believe optimistically – you might think naively – at least in the United States, we're going to come out of this stronger with a more durable economy, more capable of leading the world on economic growth.— Kevin Warsh, Federal Reserve Chairman

Why it matters — With U.S. inflation running at 3.7% and AI investment adding fresh demand pressure, Warsh's Bangkok remarks — and his deliberate silence on near-term rate moves — will shape what markets and businesses expect from the Fed's Oct. 27–28 meeting and beyond.

Reported by nytimes.com, dnyuz.com, theglobeandmail.com