Fed Chair Warsh Declines October Rate Signal at IMF, Markets Dial Back Hike Bets

Federal Reserve Chair Kevin Warsh spoke at an IMF-World Bank fireside chat in Bangkok on Friday, voicing confidence in US economic resilience but deliberately withholding any guidance on whether the Fed will raise rates again at its October 27-28 meeting. The appearance came after the Fed's most recent move brought rates to a range of 3.75%-4%, and markets interpreted Warsh's silence on the rate path as a signal that a hold is more likely than another hike.

Warsh addressed artificial intelligence at length, describing it as a positive supply shock with the potential to boost productivity, while also warning that the transition could prove "very bumpy" for the broader economy. He praised recent global monetary tightening and cautioned that there would be no free riders as central banks worldwide continue to combat inflation.

Markets responded to Warsh's remarks by sharply scaling back expectations for an October hike. US equity futures wavered after an initial rise, the dollar remained on the defensive, and gold climbed to session highs above $4,190. US Treasury yields fell alongside the reduced tightening bets. In contrast to Warsh's measured tone, Fed Governor Hammack struck a more hawkish note separately, warning that more aggressive action may still be needed to fight inflation and that financial conditions do not currently appear restrictive. Critics including Peter Schiff argued that Warsh's anti-inflation rhetoric is undermined by a Fed balance sheet that has grown since he took office and M2 money supply expanding at nearly a 6% annualized rate.