Fed's Warsh withholds rate signal, praises recent global tightening

BANGKOK — Federal Reserve Chairman Kevin Warsh refrained from signaling whether there will be another interest rate hike again this month, while acknowledging a "synchronous tightening" by central banks around the world.

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

He also acknowledged that stance may disappoint anyone who had hoped for a steer ahead of the central bank meeting later this month. "It's a new chapter at the Fed [and] we're not in that business anymore," he said.

Warsh spoke at a fireside chat with the International Monetary Fund's managing director, Kristalina Georgieva, as part of the weeklong IMF-World Bank Annual Meetings in Bangkok on Friday.

"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."

S&P 500 and Nasdaq futures edged higher following the speech, while stock market indexes in Asia and Treasury yields were largely stable.

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, he said, but the result was "a synchronous tightening in monetary policy in most places around the world," which means "there's no free riders."

Surging energy costs stemming from the Iran war and artificial intelligence investment boom are stoking inflation and pushing up borrowing costs around the world, just as global public debt is on pace to exceed 100% of the world's GDP, a level last breached in the aftermath of World War II.

The U.S. government has insisted that strong growth would be the best way to grow out of its rising debt pile, dismissing 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."

Warsh also expressed optimism about how AI 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.

A decade from now, he said, people will look back on the developments and "say this was hugely consequential."

The Fed raised rates to a range of 3.75% to 4% last month, its first hike since 2023. Traders see a 72.3% chance for the Fed to keep the interest rate unchanged at the Oct. 27-28 meeting, according to CME FedWatch, while the majority expect a 25 basis point hike at the December meeting.