Federal Reserve’s Kevin Warsh said on Tuesday that artificial intelligence has become a new variable for the U.S. economy and for central bank policymaking, while stressing that the Fed still lacks confidence on core inflation.
Speaking at a panel on technology and finance, Warsh said AI is changing how businesses set prices and manage supply chains, and it is complicating the Fed’s inflation and employment forecasts. He said traditional models may not fully capture AI-driven changes in labor demand or productivity. “We are in uncharted territory,” Warsh said, “and that requires humility in our policy approach.”
Warsh also warned that AI-powered algorithmic trading could amplify market movements, making central bank communication more critical. He noted AI could lift productivity and support non-inflationary growth, but benefits may be unevenly distributed.
On monetary policy, Warsh said he still does not have confidence that core inflation is moving sustainably toward the 2% target. He argued that financial conditions are “not difficult to characterize as restrictive,” implying policy may not be constraining the economy as much as some assume. That cautious view suggests the Fed is unlikely to cut rates until underlying price trends improve more clearly.
For markets, the remarks reinforce a higher-for-longer interest rate environment. Borrowing costs for mortgages, auto loans and corporate credit may stay elevated, and rate-sensitive investors may need to adjust. The European Central Bank and Bank of England are also studying AI’s macroeconomic implications.
For crypto markets, the hawkish macro signal may weigh on risk appetite, with bitcoin and other macro-sensitive assets tracking shifts in Fed rate expectations.
