Fed's Warsh withholds Fed rate signal, praises recent global tightening with 'no free riders'

Federal Reserve Chairman Kevin Warsh declined to signal the Fed's rate direction for its late October meeting, while addressing global central bank coordination on inflation at the IMF-World Bank Annual Meetings in Bangkok on Friday.

"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," Warsh said. He reiterated opposition to forward guidance, stating "we're not in that business anymore" at the Fed under his leadership.

Warsh acknowledged that refusal to telegraph policy may disappoint markets seeking clarity. The remarks had little immediate market impact. Asian stock indexes and Treasury yields remained largely stable following his comments.

On the global backdrop, Warsh described central banks worldwide engaged in "synchronous tightening" on inflation under their respective mandates. He emphasized "there's no free riders" in this coordinated fight on prices, meaning all major economies face inflation pressures requiring policy response.

The Fed raised rates to 3.75% to 4% last month, its first hike since 2023. Market pricing as of the article date showed a 72.3% probability of no rate change at the October 27-28 meeting, with most traders expecting a 25 basis point hike in December.

Warsh devoted more expansive remarks to artificial intelligence, calling it "probably the most consequential change to the U.S. and the global economy in my lifetime." He expressed optimism that economies deploying AI effectively will become more productive and wealthier, while warning the path involves uncertainty. Near-term employment effects remain unclear, he said.

"I want you to hear from me optimism, but optimism leavened by the seriousness of purpose," Warsh stated. He predicted that within a decade, observers will recognize the period "was hugely consequential."

Warsh's resistance to forward guidance marks a break from recent Fed practice under previous leadership and reflects his stated preference for markets to interpret data independently rather than rely on central bank signals.