‘HANGING IN THERE’:
Global central banks opted for ‘a synchronous tightening in monetary policy,’ while benefiting from an AI ‘investment surge’,’ the Fed chair said
Federal Reserve Chairman Kevin Warsh voiced optimism yesterday about US economic strength and surprise about how well global economies have been “hanging in there” amid continued energy shocks and tighter monetary policy to fight inflation. He said the US and many other economies were benefiting from an “investment surge” driven by artificial intelligence (AI) but broadening to other sectors, creating a near-term demand shock that was putting upward pressure on inflation.“I came out of meetings here yesterday and today and it’s hard to be in a discussion with central bankers and not compare notes and hear the same thing about the surge in prices,” Warsh said at the IMF and World Bank annual meetings in Bangkok.
US Federal Reserve Chairman Kevin Warsh, right, speaks with IMF managing director Kristalina Georgieva, left, during a discussion at the World Bank and IMF annual meeting in Bangkok yesterday.
Photo: EPA
With inflation a “common challenge,” Warsh said global central banks undertook “a synchronous tightening in monetary policy in most places around the world, and that means there’s no free riders.”In the US “we made very clear that we would deliver price stability, and we removed a dose of accommodation about a month ago,” he said in a reference to the Fed’s interest-rate hike last month.
However, in keeping with his style since taking the reins as Fed chief in May, he gave no preview about whether he feels more interest-rate hikes would be needed, or when.“I don’t prejudge meetings,” Warsh added in the discussion with IMF managing director Kristalina Georgieva. “I don’t believe in saying now what I might do at the meetings that we have in the balance of this year.”Financial markets have taken those remarks on board and are betting the Fed would wait until December to raise rates. That remained true even after reports this week showed two different measures of inflation running higher than expected and heading in the wrong direction from the Fed’s 2 percent goal. Warsh was optimistic about the impact of AI on economic growth and productivity in the medium-term, even as he said it would be a “very bumpy” path toward what he expected would be faster productivity growth in the “real economy” that would bolster wealth.“It’s obviously hitting the demand side of the economy before it’s going to hit the supply side of the economy,” he said. “We don’t know in the next 12 or 18 months its effect on employment, but if you believe like I believe, which is it will make economies and countries that put it to good use more productive, that it’s going to make it so that we will have more wealth, then that has to be a very good thing.”A task force convened to advise the Fed on the impact of AI on productivity and jobs would hold a “field hearing” in San Francisco on Nov. 16, he said, in what would be a first public peek at the group’s work. Warsh said that central bankers meeting in Bangkok had a common vision to safeguard price stability and were taking action to back that view, which was giving “confidence to businesses and households that’s so important for growth to continue.”“I believe optimistically — you might think naively — at least in the United States, we’re going to come out of this stronger with a more durable economy, more capable of leading the world on economic growth,” Warsh said.