Warsh: AI to Boost Wealth, but the Path Will Be “Very Tortuous”

Former Federal Reserve Governor Kevin Warsh expressed an optimistic outlook on the development of artificial intelligence (AI), while warning that its impact on the economy would follow a “very tortuous” path. According to Warsh, AI has the potential to ultimately enhance productivity and economic prosperity, particularly for nations capable of leveraging it effectively.

Warsh shared these views during a discussion with IMF Managing Director Kristalina Georgieva at the IMF and World Bank annual meetings in Bangkok on Friday. He noted that the impact of AI over the next decade would be profound, though its short-term effects on the labor market remain uncertain.

Regarding monetary policy, Warsh stated that global economic developments have generally aligned with the Federal Reserve’s expectations since the interest rate hike in September. However, he declined to provide any hints regarding the decision for the upcoming meeting, emphasizing that he did not wish to preempt the outcome of the deliberations.

The Federal Reserve raised its benchmark interest rate by 25 basis points to a range of 3.75%–4% in September—the first such increase since 2023. With a period of limited communication approaching ahead of the October 27–28 meeting, Warsh’s remarks served as a key opportunity for the market to gauge the central bank’s policy direction.

According to the CME FedWatch tool, the market currently assigns a roughly 72.3% probability to the Federal Reserve maintaining interest rates at the October meeting. Meanwhile, most market participants continue to anticipate a 25-basis-point hike at the December meeting.

Newsmaker Analysis: Warsh’s comments on AI suggest that the Federal Reserve recognizes the potential for productivity gains driven by technological advancement, though the implications for inflation, investment, and the labor market remain areas to watch. Furthermore, Warsh’s decision to withhold signals regarding the October meeting leaves the market reliant on incoming economic data and statements from other Federal Reserve officials to determine the future trajectory of interest rates. (asd)

Source: Newsmaker.id