Federal Reserve (Fed) Chairman Kevin Warsh reiterated that he will not be giving forward guidance on policy, while participating at a panel at the ECB Forum on Central Banking 2026.
“We’ll chart a new course so we can make better decisions,” Warsh added.
Key takeaways
“It’s up to the central bank to decide if AI is inflationary.”
“AI boom it’s showing itself first and very prominently in the US.”
“Exciting, consequential time to be a central banker.”
“The US is likely to be a big winner in AI.”
“It’s not a zero sum game.”
“We are only in the first or second inning of this revolution.”
“Labor markets are steady.”
“Supply side is solid.”
“We’re in the price stability business.”
“We’ve looked around and see that prices are too high.”
“Expectations of inflation over the first four weeks have come down.”
“Inflation risks have come down.”
“If anyone thought we’d be happy with inflation above 2%, they will be disappointed.”
“We’ll be an independent central bank.”
“Volatility is down, yields are down.”
“Will likely have news next week on leaders of task forces.”
“Potential growth looks like it has trended up.”
“If last 4 quarters an indication, there is reason to be optimistic.”
“Have not changed view on balance sheet in first four weeks at the Fed.”
If there is a change in balance sheet policy, decision will be well deliberated and communicated.”
“Balance sheet borders on fiscal policy.”
“Want interest rate policy to be the key policy tool.”
Warsh shuns forward guidance as Fed weighs AI’s inflation risk
Fed Chair Warsh delivered a moderately hawkish message, with a 5.6/10 FXS Speechtracker score suggesting a cautious but not aggressive stance relative to the historical average. The refusal to give forward guidance, coupled with a strong reaffirmation of the 2% inflation goal and emphasis that the central bank will judge whether AI is inflationary, underscores a data-dependent, price-stability-first approach even as Warsh highlights the United States as a likely big winner from the AI boom. Overall tone signals confidence in steady labor markets and a solid supply side, but no tolerance for sustained inflation above target.
The FXS Fed Sentiment Index was virtully unchanged, remaining at a firmly hawkish 123.64, indicating that the speech did not materially shift the broader policy tone captured by the index. The combination of a stable FXS Fed Sentiment Index and a mid-range FXS Speechtracker score points to continuity in the Fed’s hawkish bias, with markets likely to focus on the lack of forward guidance and the evolving assessment of AI’s inflation implications for the Dollar.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Read the full article here
