Fed's Warsh Outlines AI Policy Shift

Federal Reserve Chairman Kevin Warsh marked his 100th day in the role with a major policy address at the Kansas City Fed's Jackson Hole symposium on August 28, 2026. He outlined a shift in the central bank's approach to communications and launched a deep inquiry into artificial intelligence as a new factor of production.

Warsh told the audience that the Fed is watching AI's rapid progress attentively. He cited reports that annualized token sales for the two leading AI labs alone now exceed $100 billion. That figure represents an increase of more than 500 percent from a year ago.

Preparing for an AI-Driven Economy

The Chairman framed AI as a potential hinge point in history, with progress outstripping even evangelists' predictions. He posed a series of critical, unanswered questions the Fed must now consider. Will AI cause a significant, sustained rise in productivity across the economy? Will token usage complement or compete with labor?

The market structure remains unclear. Warsh questioned where the returns on capital will land. Early on, will surplus value go to owners of scarce assets like AI labs, chipmakers, and energy producers? Over time, how much value will accrue to businesses and consumers? The implications for workers and the Fed's employment mandate are also unknown.

To study these issues, Warsh has established a Fed task force on productivity and jobs. He said early check-ins with its leaders have been encouraging. Their recommendations, however, will not affect current policy decisions. The intellectual investment is meant to prepare the Fed for future challenges.

Rethinking Central Bank Communication

A more immediate innovation concerns the practice of forward guidance. Warsh expressed his long-time discomfort with early pronouncements of future policy decisions. He argued that in normal times, the role of forward guidance should be limited and circumscribed.

Transparency in communications about future policy is not a virtue unto itself, Warsh stated. He believes oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray. Quasi-commitments on interest rates can inhibit the Fed's freedom to make the right calls when the time comes.

Warsh noted that forward guidance was adopted during the Global Financial Crisis and was essential then. But he believes the practice has overstayed its welcome. The Fed needs clear, unfiltered market signals to get policy right, a relationship he aims to recalibrate.

The Chairman concluded by reflecting on the changed economic landscape. He contrasted current dynamism with the previous era's talk of secular stagnation and a global saving glut. The unchanging Tetons provided a backdrop for his survey of this shifting terrain.