Fed Chair Warsh's remarks in Bangkok sharply cooled market expectations for a rate hike this month.
On Friday morning, during a dialogue event at the International Monetary Fund annual meetings, Warsh made almost no concrete statements about the monetary policy outlook, only reaffirming the Fed's commitment to achieving price stability. This dovish stance prompted investors to quickly adjust their bets: the market-implied probability of a rate hike at the Fed's October 27-28 policy meeting plunged from about 27% before Warsh spoke to below 15%. U.S. stock futures extended gains, with S&P 500 futures reversing earlier losses to trade up 0.2%, while the dollar edged lower.
Warsh's remarks reinforced expectations that the Fed will pause its rate hikes in October. A team led by Goldman Sachs chief economist Jan Hatzius noted in a research report that, combined with recent comments from other Federal Open Market Committee (FOMC) officials, Warsh's speech further indicated the Fed will stay on hold in October, with the firm expecting the next rate increase to come in December.
Deliberate Ambiguity, Offering No Hawkish Hook for the Market
Facing market concerns about the rate path, Warsh deliberately exercised restraint in his Bangkok remarks. "We have made clear we will achieve price stability and withdrew some degree of accommodation about a month ago," he said. "I will not prejudge the outcome of the meeting, and I do not think I should now say what I might do at the remaining meetings this year."
Derek Tang, an economist at monetary policy analysis firm Monetary Policy Analytics, said in a note to clients:
"It is very clear that he does not intend to release any signal the market could interpret as hawkish."
Warsh also said that since the September FOMC meeting, "the overall economic situation has largely been in line with our expectations." In recent weeks, several Fed officials have reiterated that further rate hikes may still be needed this year, but also stressed there is ample time to gather economic data before acting again.
September Hike Already Delivered, Most Officials See One More This Year
The Fed raised its benchmark rate by 25 basis points in September, the first hike since 2023, with unanimous support from all 19 policymakers. At the same time, most officials' dot plot indicated one more rate increase this year.
Against this backdrop, whether the October meeting will see action, or whether a hike will be deferred to December, has become the core question for the market. Before Warsh's Bangkok remarks, rate-hike odds had hovered around 27%; his comments accelerated the further decline in expectations, making a hold increasingly the mainstream view.
Artificial Intelligence: Boosting Demand in the Short Term, Bringing a Supply Shock in the Medium Term
Beyond monetary policy, Warsh also offered extensive views on artificial intelligence in Bangkok, calling it the most important innovation in the global economy in his lifetime, while remaining cautious about its short-term impact.
"It will clearly hit the demand side of the economy first, and only later affect the supply side," Warsh said. "As a central banker, the job is to safeguard price stability and full employment, and one must treat this change as a shock and take it seriously."
Warsh believes that in the medium term artificial intelligence is a positive supply shock, but that it is currently boosting aggregate demand, while its impact on the job market remains uncertain. Some of his colleagues have expressed similar concerns, and some officials have even questioned whether the current investment wave supporting AI infrastructure construction could lead to an overheating economy.
Warsh also announced that a task force dedicated to studying AI's impact on productivity and employment will hold an on-site hearing in the San Francisco Bay Area on November 16. It is one of five task forces he has convened, and each will submit policy recommendations to the FOMC by the end of this year or in early 2027.
Comments