Fed's Warsh says rate decisions will be made behind closed doors, rules out forward guidance

Federal Reserve Chair Kevin Warsh said the US central bank will decide the future path of interest rates only after policymakers convene for their next policy meeting, stressing that no advance guidance will be offered to markets.

Speaking at the European Central Bank's annual forum, Warsh said the Federal Open Market Committee (FOMC) would engage in a thorough discussion before arriving at any decision on interest rates.

"When we get into that room and shut the door, we're going to have a good debate, but I don't have much more for you than that," Warsh said when asked about the Fed's next policy move.

Responding to repeated questions on whether the Fed was leaning toward raising rates, he declined to offer any indication, saying, "I am not going to give forward guidance."

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His remarks echoed European Central Bank President Christine Lagarde, who earlier said she regretted relying too heavily on forward guidance in the past. Warsh praised her stance, joking that after hearing her comments, he liked her "even more."

Inflation risks easing

Warsh said inflation expectations and inflation risks have moderated in recent weeks, while reiterating that the Federal Reserve remains firmly committed to restoring price stability. "Inflation risks have come down," he said.

However, he emphasized there would be no change to the Fed's inflation objective.

"If there were people in households or the business sector, in the financial markets, who thought that this central bank was going to be comfortable with an inflation objective above 2 per cent, they'd be disappointed. We're going to deliver price stability in the US," he said.

Reaffirms Fed independence

Warsh also strongly defended the Federal Reserve's independence amid questions about political pressure on monetary policy.

"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," he said when asked whether the administration's publicly stated views on interest rates would influence the Fed's decisions.

AI boom and monetary policy

Commenting on the rapid expansion of artificial intelligence, Warsh said the AI revolution is currently driving a surge in capital expenditure across the United States. He noted that the impact is currently more visible on the demand side of the economy but expects supply-side gains to emerge over time.

"The AI shock is leading to a boom in capital expenditures. We see that first and foremost in demand, but I'm confident we're going to see it in supply at some point," he said.

Warsh added that if AI significantly boosts productivity and expands the economy's supply capacity, it could have important implications for future monetary policy. However, he said it was too early to conclude whether the technology would ultimately prove inflationary.

His remarks marked one of his first major appearances on the global stage as Fed Chair, with investors closely watching for clues on the US central bank's policy outlook.