Interest Rates: Warsh Says Fed Will Deliver Price Stability

Federal Reserve Chair Kevin Warsh said in Bangkok on Friday, October 16, that the Fed will deliver price stability, and he gave no hint about what the central bank will do at its next meeting on October 28.

Warsh spoke in a fireside chat with IMF Managing Director Kristalina Georgieva at the IMF and World Bank annual meetings. He said central bankers everywhere are comparing notes on the same surge in prices, and that global central banks tightened policy at the same time, so there are no free riders.

Where rates stand now

The Federal Open Market Committee raised its target range for short term rates to 3.75 percent to 4 percent last month. Since that meeting, September consumer price inflation came in at 3.7 percent year over year, up from 3.4 percent the month before and well above the Fed target of 2 percent. Producer prices also ran hot this week.

Warsh said he does not prejudge meetings and does not say in advance what he might do at the meetings left this year. Traders took the same message from his colleagues. Most now bet the Fed holds rates steady on October 28 and raises by a quarter point in December, according to CME FedWatch figures cited by USA Today.

AI is pushing prices both ways

Warsh called the artificial intelligence investment surge probably the most important thing happening in the global economy on the upside. He said the buildout can push prices up in the short term, because it raises demand for products such as memory chips, and push prices down over time, because it raises productivity. He said policymakers still do not know what AI will do to jobs over the next 12 to 18 months.

Reuters reported that Warsh also voiced surprise at how well the United States and other economies are holding up through energy shocks and tighter policy. For borrowers, the plain read is this: no relief is promised this month, and the December meeting is the one markets now watch.