Fed's Warsh signals focus on inflation, no forward guidance at Sintra forum

New Federal Reserve Chair Kevin Warsh made his first international appearance at the European Central Bank's annual forum in Sintra, Portugal, where he doubled down on the Fed's commitment to price stability and resisted giving any hint about future interest rate moves.

Warsh reaffirms independence and inflation focus

Warsh said the Fed would remain independent and deliver price stability, telling the audience: "We're going to deliver price stability in the US" Source: AP. This stance likely forecloses the rate cuts President Donald Trump has sought. However, some analysts note Warsh has shifted from his earlier dovish views since taking office Source: AP.

Central bankers reject forward guidance

A notable theme of the forum was opposition to 'forward guidance' — signaling future policy intentions. Warsh repeatedly refused to provide guidance, telling a moderator: "No forward guidance, no forward guidance" Source: CNN. He found common cause with ECB President Christine Lagarde, who said she regretted feeling bound by forward guidance, as well as Bank of England Governor Andrew Bailey and Bank of Canada Governor Tiff Macklem Source: CNN.

AI's promise and peril

AI dominated discussions, with many central bankers and economists debating its impact on productivity and inflation. Warsh noted AI could boost productivity and potentially lower inflation, but the timing is uncertain: "Nothing is in the bank at this time of consequence" Source: CNN. Others warned of an AI investment bubble. Professor Itay Goldstein warned algorithms could "coordinate on a manipulative path of prices" creating bubbles and crashes Source: Gizmodo. Fed Chair Warsh also highlighted that the "AI shock" is leading to a boom in capital spending, which could be inflationary in the near term Source: Euronews.

Rate decision ahead

Warsh confirmed that the Fed will decide on a potential rate hike in about four weeks: "When we get into that room and shut the door we're going to have a good debate" Source: Euronews. This comes as inflation rose to a three-year high of 4.2% in May Source: AP. Bank of America CEO Brian Moynihan dismissed recession fears, arguing that higher rates are a sign of a strong economy Source: Fox Business. The mix of AI-driven investment and sticky inflation leaves the Fed in a delicate balancing act.