Federal Reserve Chair Kevin Warsh addressed rising inflation and economic developments at the annual International Monetary Fund and World Bank meetings in Bangkok on Friday, signalling cautiousness ahead of the Fed’s policy decision later this month. Speaking to a large audience, Warsh emphasized his commitment to achieving price stability amid pressures from increased energy prices and economic shifts driven by advances in artificial intelligence (AI).
Warsh remarked that AI represents “probably the most consequential change in the U.S. and the global economy” during his lifetime, acknowledging its long-term benefits but warning that the transition would be “a very bumpy” process. He also highlighted that central banks in the United States and globally were responding to persistent inflation by tightening monetary policy in a largely coordinated manner.
Despite September’s headline inflation rising to 3.7 percent year-on-year—above forecasts and driven in part by higher fuel costs related to geopolitical tensions—Warsh refrained from providing explicit guidance on whether the Fed would raise interest rates at its upcoming October 27-28 meeting. “I don’t prejudge meetings,” he said, reiterating a recent shift away from forward guidance on future rate moves.
Market expectations for an October rate increase shifted significantly this week. Following the inflation data release, bets on a rate hike initially climbed above 50 percent but subsequently dropped to around 15 percent after Warsh’s comments, according to Fed funds futures. Analysts at Goldman Sachs interpreted these remarks, alongside comments from other Federal Open Market Committee (FOMC) members, as signaling a likely pause in October with a potential rate increase deferred until December.
Warsh noted that economic conditions were broadly consistent with the Fed’s outlook when it raised its benchmark federal funds rate range to 3.75 to 4 percent in September—the first increase since July 2023. He acknowledged high inflation remained a concern, stating that price pressures were "uncomfortably strong" and a common topic among central bankers worldwide.
Additional Federal Reserve officials have expressed concern about inflation persistence in recent days. San Francisco Fed President Mary Daly cited increasing worries over sustained inflation, while Cleveland Fed President Beth Hammack suggested that inflation expectations might require stronger policy responses. The Fed’s December meeting will be the last for the year, coming shortly after U.S. midterm elections that will determine congressional control.
Warsh’s remarks also reflected an awareness of the political scrutiny facing the Fed, especially from President Donald Trump, who has frequently criticised the central bank’s interest rate policies. Nonetheless, Warsh’s focus remained on maintaining price stability amid evolving economic conditions, including the challenges posed by technological innovation and geopolitical factors influencing energy costs.
The International Monetary Fund’s managing director, Kristalina Georgieva, who spoke prior to Warsh, underscored the importance of central banks maintaining tight monetary policy to avoid larger future rate hikes. She welcomed the “firm language” coming from the Fed and other global central banks, emphasizing rate increases now as preferable to falling behind the inflation curve.
As the Fed enters its communications blackout ahead of the October meeting, markets and policymakers remain watchful of how the central bank will balance inflation concerns with the evolving economic landscape shaped by technological change and global developments.