The vibe check at the Fed
Federal Reserve chairman Kevin Warsh is playing it cool. Speaking at the IMF and World Bank meetings in Bangkok this Friday, Warsh noted that the economy has basically vibed exactly how the Fed expected since their September rate hike.
Real talk: The Fed is currently deciding whether to pull the trigger on another interest rate increase later this month to keep inflation in check. That inflation, largely fueled by the ongoing Iran war, is heating up, and prices are creeping into services beyond just energy costs.
The October dilemma
Warsh isn't giving away the plot just yet. He told IMF managing director Kristalina Georgieva that he doesn't believe in spoiling the ending before the meeting happens. We are heading into the Fed's mandatory blackout period before the October 27-28 policy meeting, so officials are being tight-lipped.
While some big names like Vice chair Philip Jefferson and New York Fed president John Williams have hinted they might skip a hike this month, the market is lowkey spiraling. After a hot inflation report dropped this week, the odds of a hike spiked to 50% before cooling back down to 28% by Thursday.
The AI factor
Warsh also weighed in on why the economy is looking so strong lately: AI. He called the current "massive investment surge" in AI the most important thing happening globally right now. He’s highkey banking on AI to eventually boost productivity, but he warned the transition is going to be "a very bumpy one."
To figure out exactly how tech is changing the game, Warsh announced the Fed will hold a field hearing for their productivity and jobs task force on November 16 in the Bay Area. It’s a move toward rethinking how the central bank handles monetary policy in this new era.
Why it matters
The Fed is in a delicate spot. They need to squash inflation without killing the vibe of an economy that is currently being propped up by massive corporate spending on AI. Whether they hike again this month is the ultimate L or W for the current market trajectory.
