Kevin Warsh told us more about his big plans for the Federal Reserve.
The newly minted chair gave his first keynote address at the Jackson Hole Economic Symposium on Friday morning to a group of investors, economists, and journalists.
From AI optimism to monetary policy outlook, here are Business Insider’s biggest takeaways.
‘Don’t call it forward guidance’
On theme for the Wyoming mountain weekend, Warsh opened the speech with “hike” puns and a trail map metaphor.
“Here is a quick overview of what I’ll cover in my remarks this morning,” he began. “You can call it an outline. You can call it a trail map, just don’t call it forward guidance.”
The chair then doubled down on his driving ethos as chair, saying that the central bank should stop publicly predicting future monetary policy. In the past, Warsh has pushed back on quarterly projections, dot plots, and detailed reasoning for interest rate decisions. Warsh said these traditional Federal Open Market Committee practices are ill-suited to modern times and could foster unnecessary market reactions. He wants “a quieter Fed,” he said.
Warsh said that his task forces — which focus on revamping the central bank’s approach to communications, jobs and productivity, data, inflation, and the balance sheet — will establish stronger alternatives to forward guidance.
“I am not waiting to introduce innovations at the Fed to make us fit for purpose,” Warsh said, adding, “Transparency in communications about future policy decisions is not a virtue unto itself.”
New rules for monetary policy
Warsh outlined his guiding principles for interest-rate decisions.
Warsh wants the Fed to lean more heavily on real-time data and trends, rather than monthly data points like the government’s jobs and inflation reports.
He also emphasized the FOMC’s role in balancing supply and demand dynamics, another area where he would prefer the Fed react only to concrete data.
“Yesterday’s news has a way of getting mistaken for what is happening right now,” he said.
Living up to his hawkish reputation, Warsh added that he is committed to reaching both the Fed’s 2% inflation goal and maximum employment.
“Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed’s job to deliver stable prices,” he said, adding. “I do not believe that the Fed’s dual mandate works at cross-purposes. After all, high inflation itself is very harmful to economic prosperity.”
To Warsh, money matters. Under his tenure, he said the Fed will pay attention to money moving through the government, as is customary for the FOMC. But he will pay closer attention to dollars moving through the economy as a whole, especially at banks, financial firms, and the rest of the private sector.
AI and the economy
Warsh said he has a guiding question for the contemporary US economy: “Will the application of AI cause a significant, sustained rise in productivity across the economy? And if so, when?”
As he sees it, the impacts of new technology will be a net positive for overall price dynamics and the labor market. He acknowledged that the timeline for AI’s ROI is unclear, especially with rapidly evolving norms for AI labs, chipmakers, energy producers, and cloud providers. The pricing model for major AI companies — and the evolution of tokens — is something he is watching closely.
His task force on productivity and jobs will be leading the charge on AI, he said. Warsh has previously said that AI is among the best things to happen to the US economy and “a testament to American ingenuity.”
“We recognize that AI is a new variable—potentially a new factor of production—that will have consequences for both the economy and the conduct of monetary policy,” he said Friday.
Still, Warsh said he understands the stakes are high for companies and their workforce.
“So much depends on the choices we make,” he said.
