Fed Chair Withholds Rate Signal, Praises Recent Global Tightening

During a fireside chat last week in Bangkok, Federal Reserve Chairman Kevin Warsh refrained from signaling whether there will be another interest rate hike again this month.

He acknowledged a “synchronous tightening” by central banks around the world, CNBC reported.

Warsh was talking with the International Monetary Fund’s managing director, Kristalina Georgieva, as part of the weeklong IMF-World Bank Annual Meetings in Bangkok.

“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, while reiterating his opposition to the use of forward guidance for markets that should rely on interpreting data.

Warsh said his stance may disappoint anyone who had hoped for a steer ahead of the central bank meeting later this month.

A New Chapter at the Fed

“It’s a new chapter at the Fed [and] we’re not in that business anymore,” Warsh noted.

“Alongside other recent comments from FOMC participants, Warsh’s comments indicate that the FOMC is set to pause in October,” Goldman Sachs economists led by Jan Hatzius wrote in a note. “We continue to expect a second and final hike in December.”

CNBC noted that the S&P 500 and Nasdaq futures edged higher after the speech, while Asian stock market indexes and Treasury yields were largely stable.

In his chat, Warsh described the global shift toward tighter monetary policy as a common fight on prices.

Central banks made their own choices under their own mandates, Warsh noted, but the result was “a synchronous tightening in monetary policy in most places around the world,” which means “there’s no free riders.”

CNBC noted that the U.S. government has insisted that strong growth would be the best way to grow out of its rising debt pile, and dismissed the IMF’s warning that the plans of relying solely on growth won’t work as something that needs to be taken “with a grain of salt.”

Expressed Optimism

Warsh expressed optimism about how artificial intelligence will make economies that use it well more productive and wealthier, while warning the road there may be “very bumpy,” and its near-term effect on employment is still uncertain.

“I want you to hear from me optimism, but optimism leavened by the seriousness of purpose,” Warsh said.

Warsh noted that a decade from now, people will look back on the developments and “say this was hugely consequential.”