Washington\u00a0\u2014\u00a0\n <\/p>\n
\n Federal Reserve Chairman Kevin Warsh has been outspoken about AI and its potential economic benefits. His view on where interest rates are heading, however, is harder to pin down.\n <\/p>\n
\n In the nine weeks since taking the helm at America\u2019s central bank, Warsh has declined to publicly discuss what recent economic trends mean for rates, abandoning the long-held practice of providing \u201cforward guidance.\u201d He reinforced that approach last week after the Fed\u2019s latest decision to hold its benchmark lending rate steady for the fifth consecutive time, saying it\u2019s been \u201ca change for the better.\u201d\n <\/p>\n
\n Warsh has been much more forthcoming about AI. He said robust business investment, much of it driven by demand for AI infrastructure, \u201cis preparing the ground for future growth.\u201d He has also argued that AI could boost productivity and even lower inflation, which would give the Fed room to cut rates.\n <\/p>\n
\n By repeatedly highlighting the potential economic boom from AI, he is drawing attention to a development that would strengthen the case for cutting rates.\n <\/p>\n
\n \u201cHe is intently obfuscative,\u201d said Thierry Wizman, global FX and rates strategist at Macquarie Group. \u201cThe only semi-clear opinion that Warsh has offered is that the supply side of the economy is likely to follow a path that improves productivity, presumably on AI-oriented investment, and that this will be disinflationary.\u201d\n <\/p>\n
\n The Fed declined to comment to CNN.\n <\/p>\n
\n Warsh has been a reliable cheerleader of AI\u2019s advancement and its potential to unleash a productivity boom. He has not only talked it up, but he has made one of his five task forces explore that same topic.\n <\/p>\n
\n \u201cThe productivity task force is focused very much on AI and how that could be disinflationary,\u201d said Derek Tang, a policy economist at Monetary Policy Analytics.\n <\/p>\n
\n \u201cIt does seem that Warsh wants to keep that hope alive that productivity will be a convincing story to lower rates,\u201d he added.\n <\/p>\n
\n Productivity growth increases the economy\u2019s capacity to produce goods and services. If companies can make more without significantly increasing their costs, then the economy can meet demand without pushing up prices, thus reducing inflation pressures.\n <\/p>\n
\n AI\u2019s impact on business investment is \u201cthe most striking feature of the economy right now,\u201d Warsh said in congressional testimony last month. The result has been a supply shock \u2014 a rapid increase in supply for goods or services \u2014 \u201chappening faster than I would have projected 18 months or two years ago.\u201d\n <\/p>\n
\n When asked during last month\u2019s congressional hearing if AI gives the Fed an opportunity to cut rates, Warsh said: \u201cI think this could be that opportunity. But I can\u2019t say it for certain as of yet.\u201d\n <\/p>\n
\n Luke Tilley, chief economist at M&T Bank and Wilmington Trust, said \u201cartificial intelligence can increase productivity in the same way that the internet revolution did, but it will probably do so over a multi-decade basis, like the internet.\u201d\n <\/p>\n
\n Warsh appears content to let financial markets do some of the Fed\u2019s tightening for it, which would take some pressure off central bankers to raise borrowing costs themselves.\n <\/p>\n
\n In last week\u2019s post-meeting press conference, Warsh noted the steep run-up in long-term interest rates, describing it as the largest-ever move between Fed meetings \u2014 evidence that financial conditions had tightened even without a change in the Fed\u2019s benchmark rate.\n <\/p>\n