Fed s Warsh Sees AI Raising Productivity, Offers No Hint on Next Rate Move

US Federal Reserve Chair Kevin Warsh said on Friday in Bangkok that the global economy had proved more resilient than he expected earlier this year and called artificial intelligence the most consequential economic development of his lifetimebut he gave no signal about whether the Fed will raise interest rates at its next meeting.

Speaking at the annual IMF and World Bank meetings, Warsh declined to prejudge the Feds policy decision due on 28 October. He described a broadening investment surge in the United Statesdriven by but not limited to AIthat has given the US economy plenty of tailwinds, a momentum he said was not seen everywhere around the world.

Warshs comments come amid a backdrop of stronger-than-expected activity and higher prices. Energy costs have jumped since the US and Israel went to war with Iran in late February, and the AI investment boom has boosted demand for chips, data centres and other equipment. Those forces have pushed inflation up in many economies and prompted central banks to tighten policy.

The Fed raised its policy rate by 25 basis points in September to a 3.75%-4% rangeits first hike since July 2023and Warsh stressed the Feds resolve to deliver price stability since taking the chair in May. He noted that central banks met in Bangkok with a similar determination, describing recent global moves as synchronous tightening that leaves no free riders.

The IMF this week nudged up its 2026 global growth forecast to 3.1% but warned that downside risks remain. Markets are also grappling with higher borrowing costs: the US 10-year Treasury yield has climbed above 5%, while French government bond yields trade near 4.8%.

A 'bumpy' road for AI

Much of the discussion focused on AI. Warsh said AI is probably the most consequential change for the US and world economies in his lifetime. He has previously argued that an eventual productivity boom driven by AI could ease inflation and allow for lower interest rates, but acknowledged that the current investment frenzy is pushing prices up by increasing demand. Fed minutes from September noted that data centre construction has lifted costs for chips, computer equipment and electrical components.

Over time, Warsh expects AI to expand the economys productive capacity and bring huge benefit domestically and abroad. He also suggested AI will change central banking, quipping that today policymakers torture data with old-fashioned models and that soon it wont be torture. Yet he warned the transition will be a very bumpy one, given uncertainties about the technology and future market structure.

Eyes on the Feds next meeting

Warsh has pledged to give fewer forward hints about policy and kept to that promise. Recent data show US consumer price inflation rose to 3.7% in September from 3.4%, driven by higher petrol costs, while core inflation was 2.6%. Wholesale prices rose 6.3% year-on-yearthe largest increase since 2022and the economy added a modest 29,000 jobs in the latest month.

Market-implied odds for an October rate hike have swung this monthrising to about 50% after mid-month inflation figures before easing back to roughly 30%, according to CME FedWatch. Odds for a December hike sit near 90%, and the Feds September minutes indicated most officials expect another increase this year.

Voices inside the Fed are split. New York Fed President John Williams said it may be appropriate to have one more rate hike but did not see a need for further tightening in 2027. Fed Governor Michelle Bowman, speaking in Bangkok, said she felt no urgency to act.

With the 3 November US midterm elections days away, and after defying President Donald Trumps calls for lower rates in September, Warshs public remarks were among his last before the Feds quiet period begins. Officials are barred from discussing policy until after the October decision; investors will next hear from Warsh at the post-decision press conference.

In short, Warsh highlighted the potential for AI to boost long-term productivity but kept markets guessing about near-term monetary policy as inflation and geopolitical risks keep borrowing costs elevated.