BANGKOK – Federal Reserve Chairman Kevin Warsh declined to suggest whether there will be another interest rate hike this month, but acknowledged there is “no free rider” as central banks around the world tighten “all at once.”
“I don’t have any preconceptions about the meeting. I don’t believe in anything I say right now about what we’ll do at a meeting scheduled for later this year,” Warsh said, reiterating his opposition to the use of forward guidance for markets that should rely on interpretation of data.
He also acknowledged that this stance could disappoint those hoping to take the reins ahead of the central bank’s meeting later this month. “This is a new chapter for the Fed (and) we’re not in that kind of work anymore, but we can go in any direction you want,” he said.
Warsh spoke in a fireside conversation with International Monetary Fund Managing Director Kristalina Georgieva on Friday as part of the week-long IMF/World Bank Annual Meetings in Bangkok.
“Mr. Warsh’s comments, along with other recent comments by FOMC participants, indicate that the FOMC is scheduled to be suspended in October,” Goldman Sachs economists led by Jan Hadzius said in a note. “We continue to expect a second and final rate hike in December.”
The S&P 500 and Nasdaq futures rose slightly following the speech, but Asian stock indexes and U.S. Treasury yields were mostly stable.
Warsh explained that the global shift to tight monetary policy is a common fight against prices. He said central banks had made their own choices based on their mandates, but the result was a “simultaneous tightening of monetary policy in most parts of the world”, which meant “there are no free riders”.
Rising energy costs caused by the Iran war and the artificial intelligence investment boom are driving up inflation and raising borrowing costs around the world. Global public debt is on pace to exceed 100% of global GDP, a level last broken after World War II.
The US government insisted that strong growth was the best way to grow out of its mounting debt mountain, and dismissed the IMF’s warnings that plans that relied solely on growth would not work as something that needed to be taken “with a grain of salt.”
Warsh also expressed optimism about how AI could increase the productivity and wealth of economies that leverage it well, but warned that the road could be “very bumpy” and that the short-term impact on jobs is still unclear.
“I want you to hear my optimism, but optimism is fostered by seriousness of purpose,” Warsh said.
Ten years from now, people will look back on this development and say “this was a very significant result,” he said.
The Fed last month raised interest rates to a range of 3.75% to 4%, marking the first rate hike since 2023. According to CME FedWatch, traders see a 72.3% chance that the Fed will leave interest rates unchanged at its Oct. 27-28 meeting, but most expect a 25 basis point rate hike at its December meeting.
