Federal Reserve Chair Kevin Warsh had a perfect chance to give investors a hint about the next rate move. He refused. Speaking at a central banking conference, Warsh said prices are still too high and that the Fed's main job is to keep them stable.
Investors are stuck guessing. The job market is slowing down, and inflation is not falling fast enough. They want to know: Will the Fed raise rates again, or will it wait? Warsh will not say.
Warsh spoke alongside three other top central bankers at the ECB Forum. European Central Bank President Christine Lagarde explained why the ECB recently raised rates. Bank of England Governor Andrew Bailey listed risks that keep central bankers awake at night.
"We look at the increase in leverage in core government bonds markets," Bailey said. Leverage means borrowing money to invest. Too much of it can cause sudden crashes.
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Bailey added, "Central bankers were monitoring issues that could carry tail risk and potentially trigger financial instability. We've seen in the course of the last few months an increase in leverage in equity markets - you look at hedge fund leverage in equity markets, you look at leverage in exchange-traded fund markets, those things are changing." He continued, "If you look at private credit, the question we're asking is, are those the things that actually can move from tail risk into a broader consequence?"
Bailey also said, "The Bank of England is monitoring asset valuations. We are living in a world where you've got quite a divergence between how bond yields are moving and how equity markets are moving." He added, "A lot of this comes back to … AI. Frontier AI is obviously high on the list. We've got quite a list of things that we're looking at at the moment."
Warsh pointed to a shift in thinking about technology. But he gave no specifics on rate policy. Warsh noted at the ECB Forum, "If there was a common thing I heard over the last couple of days, it was open-mindedness on these questions of AI, open-mindedness on productivity, but we've all looked around, and we've seen that prices are too high."
Christine Lagarde also noted how the U.S. and Europe rely on each other regarding AI.
She said, "We need those frontier companies, but they need the market. When Europe represents 25% of the revenues of many of those hyperscalers - we need each other. We are in this game together." She added, "There will be healthy competition, I'm sure, but we depend on each other. We can't dispense of them, and they can't dispense of the revenue source that we constitute. So we are in this together."
"We've been an independent central bank for a very long time," Warsh said. "We're going to be an independent central bank at this moment, and you're going to see no changes on that."
"We have news to come. I can tell you likely next week who will be the outside experts," he said. "Some of them would have been folks in seats like this in prior years, some would have been academics in the audience. But we really tried to find the best minds [in the] economics profession among practitioners, experienced hands, including people from countries outside the U.S." He added, "We're not asking for De Tocqueville to come to America, but sometimes we need a foreigner to sort of see things clearly."
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