Fed's Warsh withholds rate signal, praises recent global tightening with 'no free riders'

Key points

• Fed Chairman Kevin Warsh declined to signal whether another rate hike will come this month.
• Warsh praised a 'synchronous tightening' by central banks worldwide, saying there are 'no free riders.'
• Traders see a 72.3% chance the Fed holds rates at the Oct. 27-28 meeting.

Federal Reserve Chairman Kevin Warsh declined to indicate whether the central bank will raise interest rates again this month, speaking Friday at a fireside chat with IMF Managing Director Kristalina Georgieva during the IMF-World Bank Annual Meetings in Bangkok.

Warsh said he does not pre-judge meetings or state in advance what he might do at the Fed's remaining meetings this year, reiterating his opposition to forward guidance. He acknowledged the stance may disappoint those seeking a steer before the central bank's meeting later this month, saying, 'It's a new chapter at the Fed.'

Global tightening and no free riders

Warsh described the worldwide 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,' meaning 'there's no free riders.'

Surging energy costs from the Iran war and an artificial intelligence investment boom are stoking inflation and pushing up borrowing costs globally, as global public debt is on pace to exceed 100% of world GDP, a level last breached after World War II. The U.S. government has insisted strong growth is the best way out of its rising debt, dismissing the IMF's warning against relying solely on growth as something to take 'with a grain of salt.'

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.

— Kevin Warsh

AI outlook and market reaction

Warsh expressed optimism that 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 employment effect remains uncertain. He said people will look back on these developments and 'say this was hugely consequential.'

S&P 500 and Nasdaq futures edged higher after the speech, while Asian stock indexes and Treasury yields were largely stable. The Fed raised rates to 3.75% to 4% last month, its first hike since 2023. Goldman Sachs economists led by Jan Hatzius wrote that Warsh's comments indicate the FOMC is set to pause in October, adding, 'We continue to expect a second and final hike in December.'