MNI BRIEF: Fed's Warsh Says Inflation Risks Have Come Down

Federal Reserve Chairman Kevin Warsh on Wednesday gave no hints about the path of monetary policy, but noted that risks of higher inflation have receded, while again committing to the 2% inflation target. 

Warsh declined to give any signal as to what the Fed may do at its meeting later this month. "I'll say this: expectations of inflation over the first four months, first four weeks of this period, they've come down, inflation risks have come down."

"We're going to deliver price stability in the US. That's what this committee has signed up to do. And our objective is to do that. The tactics, the strategy, and the rest, that's still to come," Warsh said on a panel in Portugal. "We've been an independent central bank for a very long time, we're going to be an independent central bank at this moment, and you're going to see no changes on that." (See: MNI INTERVIEW: Hawkish Fed Tilted Toward Hikes, Says Groen) 

The Fed chairman said he could announce next week the heads of his five task forces, suggesting he will tap academics or former central bankers who do not currently work at the Fed.

He did, however, comment that the AI capital expenditure boom is showing up in the near term on the demand side. "It's up to the central bank to decide whether it's inflationary."

Warsh observed it's up to the Fed to determine whether the AI boom is inflationary. "The AI boom is showing itself first and very prominently in the United States," he said. Companies' "expectation is the supply side of the economy will expand, and if it does, that has huge implications for monetary policy. But again, I'm not going to make a judgment now. We'll meet again in four weeks, but this is as exciting a time, and also as consequential a time to be a central banker that I can think of at any point, maybe outside of a crisis in my adult lifetime."