Warsh Opens Door to Rate Hikes as AI Reshapes Fed Outlook
Kevin Warsh succeeded Jerome Powell as Federal Reserve chair in late May, making his first Jackson Hole keynote — delivered on his 100th day in office — a closely watched statement of his policy framework. Warsh reaffirmed the Fed’s fixed 2% inflation target and full-employment mandate while arguing that artificial intelligence could become a new factor of production, altering productivity, labor demand, capital intensity and the models policymakers use to set interest rates.
On Aug. 28, Warsh said the 12-month PCE inflation rate stood at 3.7%, while the six-month annualized pace was 4.1%, both well above the Fed’s 2% target. He stopped short of committing to an increase but said policymakers had “work to do” unless underlying inflation slowed clearly and quickly. Equipment and intangibles investment rose about 9% over four quarters, the fastest since 2021, with more than half of this year’s capital-spending growth likely tied to the AI buildout.
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The history behind this eventFed Chair Warsh, in First Hearing, Vows Zero Tolerance for Inflation and Flags AI Investment Boom
The Federal Reserve changed leadership in 2026, with Kevin Warsh succeeding Jerome Powell at the end of Powell's term to take charge of U.S. monetary policy. A new Fed chair's first congressional hearing is a key opportunity for markets to assess the direction of policy because the central bank's interest-rate decisions directly influence global funding costs and the pricing of stocks, bonds, cryptocurrencies and other risk assets. Warsh's remarks drew particular attention on Wall Street because of his longstanding hawkish reputation.
At his first congressional hearing as Fed chair, Warsh reiterated his “zero tolerance” for high inflation and explicitly declined to provide forward guidance on interest rates, saying policy would be adjusted as economic data evolved. He also identified the artificial intelligence investment boom as the most striking feature of the U.S. economy, signaling that the Fed is closely monitoring how the related capital spending affects prices and financial stability. Bitcoin and other risk assets came under pressure and weakened following his hawkish remarks.
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