Kevin Warsh thinks artificial intelligence could make economies more productive and generate more wealth. Getting there is the uncomfortable part. The Federal Reserve chair says the spending boom is arriving before the benefits to production, and the road ahead will be "very bumpy."
Speaking in Bangkok on October 16, Warsh called AI one of the most consequential economic changes of his lifetime. But he also acknowledged uncertainty about what it will do to jobs. For households waiting for lower prices and cheaper borrowing, his optimism came with no promise of immediate relief.
The spending comes before the payoff
Warsh was speaking with IMF Managing Director Kristalina Georgieva at a discussion during the IMF-World Bank annual meetings. His argument was about the order in which AI changes the economy: investment lifts demand first, while the technology's ability to expand production takes longer to arrive.
Companies need equipment, buildings and power before new systems start saving time or increasing output. That creates a difficult stretch for central bankers. They have to manage today's spending pressures while judging how much extra productive capacity tomorrow's technology might deliver.
Warsh described the American investment surge as broader than AI and a source of economic strength. According to NBC News' account of his remarks, he said:
It's probably the most important thing that's happening in the global economy on the upside. I think it's going to fundamentally change the conduct of monetary policy.
The eventual benefit he expects is what economists call a positive supply shock: a greater capacity to produce goods and services. He also said AI is already increasing aggregate demand on the way there. That timing gap is the catch in his upbeat forecast.
The inflation problem is hardly theoretical. The Bureau of Labor Statistics reported on October 15 that producer prices rose 1.3% in September, seasonally adjusted, and 6.3% over the preceding year. Its release identified energy as the main driver of the increase in goods prices. Those figures describe broad price pressures, rather than measuring AI's contribution.
Optimism comes without a rate promise
Warsh declined to signal whether the Fed would raise rates at its October 27-28 meeting. He said the economy had broadly developed as expected since September and reiterated the commitment to price stability.
As previously reported by Apex, the Fed raised its benchmark range to 3.75%-4% in September. New York Fed President John Williams and Boston Fed President Susan Collins have since pointed to AI investment and energy costs as inflation pressures, while differing in emphasis about the outlook. Their comments help explain why a long-term productivity story has not settled the near-term policy debate.
Warsh's position leaves an awkward question for businesses and borrowers: how long will the spending boom run before efficiency gains become strong enough to ease pressure on prices? His remarks offered confidence about the destination, rather than a timetable for reaching it.
The jobs question goes to Silicon Valley
Warsh also announced a November 16 field hearing in the San Francisco Bay Area for the Fed's productivity and jobs task force. That gives policymakers a specific next step as they examine how the technology changes employment and output.
The Fed's official page says the group is assessing new general-purpose technologies, including AI, to inform policy. Its leaders include venture capitalist Marc Andreessen and Stanford economist Charles I. Jones, whom the page lists as on leave at Anthropic.
The question is bigger than whether software can perform more tasks. Policymakers need to understand how businesses use it, how quickly gains spread and what happens to workers along the way. Warsh acknowledged that AI's near-term employment effects remain unclear.
He nevertheless emphasized his confidence in the technology. NBC News quoted him saying:
So I want you to hear from me optimism, but optimism leavened by the seriousness of purpose to the day jobs that you and I have. I think it's an exciting development and it's an innovation that I think a decade from now they'll look back on and they'll say this was hugely consequential.
For now, households and employers are left waiting for the payoff. The investment is happening today, along with the pressure on prices. Warsh expects AI to make the economy richer over time, but the Fed still has to get through the difficult part in between.