Fed Chair Refuses To Signal Another Rate Hike. Markets Are Betting On An October Pause.

Federal Reserve Chair Kevin Warsh declined to signal whether the central bank would raise interest rates again this month, defending his move away from advance policy guidance as inflation remains elevated and borrowing costs rise across major economies.

Speaking alongside International Monetary Fund Managing Director Kristalina Georgieva at the IMF-World Bank Annual Meetings in Bangkok, Warsh said he would not commit to a decision before the Federal Reserve's Oct. 27-28 meeting.

"I don't prejudge meetings," he said, adding that he did not believe in telling markets beforehand how he might vote at the remaining meetings this year.

Warsh acknowledged that investors seeking clues about the central bank's next move could be disappointed. "It's a new chapter at the Fed," he said.

The Federal Reserve raised its benchmark interest rate by a quarter percentage point to a range of 3.75% to 4% on Sept. 16, its first increase since 2023. The decision was unanimous, according to the Federal Reserve's policy statement.

Policymakers said economic activity continued to expand at a solid pace, supported by resilient consumer spending and strong capital investment. Job gains had kept pace with workforce growth, while unemployment remained relatively stable. However, inflation continued to exceed the central bank's 2% target.

The minutes of the September meeting, released Oct. 7, showed that most participants believed another interest rate increase would likely be appropriate before the end of 2026. They emphasized that future decisions would depend on incoming economic data.

The latest inflation figures reinforced concerns about persistent price pressures. The consumer price index increased 3.7% in September from a year earlier, accelerating from 3.4% in August, according to the Bureau of Labor Statistics.

On a monthly basis, consumer prices rose 0.6%, with gasoline accounting for more than half the increase. Gasoline prices climbed 9.1%, while the broader energy index rose 5.2%. Core inflation, which excludes volatile food and energy prices, increased to 2.6% annually from 2.4% in August.

Despite the latest inflation figures, investors continued to expect the Federal Reserve to leave interest rates unchanged at its upcoming meeting. Traders assigned a 86.2% probability to an October pause, according to CME FedWatch figures.

Goldman Sachs economists led by Jan Hatzius also viewed Warsh's comments as consistent with keeping rates steady this month, CNBC reported. The economists maintained their expectation of a second and final quarter-point increase in December. Warsh offered no indication of whether he agreed with that outlook.

The Fed chair also acknowledged the broader shift toward tighter monetary policy, saying central banks had independently taken steps to address rising prices.

He described the outcome as a "synchronous tightening" across much of the world, adding that there were "no free riders" in the effort to restore price stability.

His remarks came as higher energy prices, geopolitical tensions and growing investment in artificial intelligence added to economic pressures worldwide.

The IMF warned Thursday that rising borrowing costs were increasing pressure on governments already carrying substantial debt burdens.

Average 10-year government bond yields across Group of Seven economies increased by more than one percentage point between February and September, reaching their highest level in nearly two decades, according to the fund.

Global public debt is also projected to exceed 100% of global gross domestic product by 2030, a level last recorded immediately after World War II. The IMF identified persistent inflation, the oil price shock, stronger investment demand and expectations of higher growth linked to AI as factors contributing to rising government bond yields.

Warsh expressed optimism about the long-term economic benefits of artificial intelligence, saying countries that successfully adopted the technology could become more productive and wealthier. However, he cautioned that the transition would be "very bumpy," with its immediate impact on employment still difficult to determine.

AI investment has already become an important consideration for Federal Reserve policymakers. The September FOMC minutes showed that some participants believed the scale of investment in AI infrastructure could push demand beyond available supply and contribute to inflation over the medium term.