Warsh Keeps the Fed Guessing in Bangkok: October Hike Odds Halve as AI Takes Center Stage
Traders who tuned in to Kevin Warsh at the IMF and World Bank annual meetings in Bangkok on Friday, October 16, wanted a clue about the Fed's next move. They didn't get one. In a fireside chat with IMF Managing Director Kristalina Georgieva, the Fed Chair would not say what the committee will do on October 27–28 and spent much of the session on artificial intelligence. After a week of hot inflation data, markets took the silence as good news, for a few hours at least.
What he said, and what he left out
Warsh said again that the Fed has committed to delivering price stability, but he would not be pinned down on timing. "I don't believe in pre-judging meetings," he said. Decisions will be made at the October and December meetings, not signalled in advance. He also said he might be "over-scarred" by the 2008 crisis, a sign financial-stability risks remain on his mind.
He said the world economy has held up better than he expected and has "broadly conformed" to the Fed's expectations since September, and he described the current tightening as synchronised across central banks. None of this is out of character: Warsh rejects forward guidance and did not submit his own dot-plot projection in either June or September.
Why the market read it as relief
The backdrop explains the reaction. September CPI rose to 3.7% year on year (core 2.6%). Thursday's PPI then showed final-demand prices up 1.3% in a single month, the biggest jump since March 2022, with energy doing most of the damage. With rates already at 3.75–4.00% after September's hike, some traders feared Warsh would prepare markets for another move this month.
He did not. Futures-implied odds of an October hike fell from roughly 26–30% to about 14–17%, depending on the source, and the probability of a hold rose to around 85%. Goldman Sachs reportedly read the remarks as pointing to a pause this month and still expects a final hike in December, which markets continue to price heavily.
The AI angle
Warsh called AI probably the most consequential economic change of his lifetime and a major long-run benefit to the US economy. The order he described matters for traders: the investment boom lifts demand first and adds to price pressure now, while the productivity gains that expand supply come later. That argues for staying tight in the near term, not for easing.
He also said AI will fundamentally change how monetary policy is conducted, adding that central banks today "torture data with old-fashioned models." He warned the path is likely to be "very bumpy" and announced a Fed field hearing on AI in the San Francisco Bay Area on November 16.
The timing was awkward. Chipmakers fell for an eighth or ninth straight session, with one report putting the week's losses in major AI and chip stocks near $1 trillion. CoreWeave's five-year credit default swaps hit a record intraday level of about 1,194 bp, which implies a default probability above 60%, and its 9% 2031 notes slid to around 80 cents on the dollar.
Market moves
What to watch before October 28
Traders who tuned in to Kevin Warsh at the IMF and World Bank annual meetings in Bangkok on Friday, October 16, wanted a clue about the Fed's next move. They didn't get one. In a fireside chat with IMF Managing Director Kristalina Georgieva, the Fed Chair would not say what the committee will do on October 27–28 and spent much of the session on artificial intelligence. After a week of hot inflation data, markets took the silence as good news, for a few hours at least.
What he said, and what he left out
Warsh said again that the Fed has committed to delivering price stability, but he would not be pinned down on timing. "I don't believe in pre-judging meetings," he said. Decisions will be made at the October and December meetings, not signalled in advance. He also said he might be "over-scarred" by the 2008 crisis, a sign financial-stability risks remain on his mind.
He said the world economy has held up better than he expected and has "broadly conformed" to the Fed's expectations since September, and he described the current tightening as synchronised across central banks. None of this is out of character: Warsh rejects forward guidance and did not submit his own dot-plot projection in either June or September.
Why the market read it as relief
The backdrop explains the reaction. September CPI rose to 3.7% year on year (core 2.6%). Thursday's PPI then showed final-demand prices up 1.3% in a single month, the biggest jump since March 2022, with energy doing most of the damage. With rates already at 3.75–4.00% after September's hike, some traders feared Warsh would prepare markets for another move this month.
He did not. Futures-implied odds of an October hike fell from roughly 26–30% to about 14–17%, depending on the source, and the probability of a hold rose to around 85%. Goldman Sachs reportedly read the remarks as pointing to a pause this month and still expects a final hike in December, which markets continue to price heavily.
The AI angle
Warsh called AI probably the most consequential economic change of his lifetime and a major long-run benefit to the US economy. The order he described matters for traders: the investment boom lifts demand first and adds to price pressure now, while the productivity gains that expand supply come later. That argues for staying tight in the near term, not for easing.
He also said AI will fundamentally change how monetary policy is conducted, adding that central banks today "torture data with old-fashioned models." He warned the path is likely to be "very bumpy" and announced a Fed field hearing on AI in the San Francisco Bay Area on November 16.
The timing was awkward. Chipmakers fell for an eighth or ninth straight session, with one report putting the week's losses in major AI and chip stocks near $1 trillion. CoreWeave's five-year credit default swaps hit a record intraday level of about 1,194 bp, which implies a default probability above 60%, and its 9% 2031 notes slid to around 80 cents on the dollar.
Market moves
- Dollar: The DXY slipped about 0.2–0.3% to around 101.7–101.8, a two-week low. Bloomberg's gauge was on track for its worst week since early September.
- FX: EUR/USD climbed toward 1.125 and GBP/USD reached about 1.333, a three-week high. USD/JPY stayed near 158. The kiwi and the Aussie dollar gained the most.
- Yields: Treasuries had already rallied hard on Thursday on safe-haven demand. On Friday the 10-year yield edged back up to about 5.09% as oil jumped.
- Stocks: US futures rose after the chat, but the gains did not last. The S&P 500 closed down 1.1% and the Nasdaq Composite fell 2.1% as tech sold off again.
- Commodities: WTI gained almost 4% to about $101.7, and Brent rose to near $110. Gold was little changed around $4,170.
What to watch before October 28
- Fed blackout: The quiet period starts on Saturday, October 17, so Friday's remarks are among the last Fed comments traders will hear before the decision.
- Oil: With Brent near $110, energy-driven inflation remains the clearest threat to the "pause" scenario.
- Hyperscaler earnings: Microsoft is reportedly due on October 27, and Alphabet and Meta on October 28 after the close. Their AI capex guidance lands while the Fed is meeting, so keep an eye on CoreWeave's credit spreads too.
- After the meeting: September PCE is not due until October 29, the day after the Fed decision. The ECB announces its rate decision the same day.
Bottom line
Warsh gave markets nothing concrete, and right now that was enough to roughly halve October hike odds and push the dollar lower. The relief was thin, though. Oil and stress in the AI sector dragged stocks down by the close. Into October 28, traders face a Fed keeping every option open, inflation that still calls for vigilance, and a December hike as the base case. Until the statement is out, positioning rather than guidance will likely drive prices.
This article is for information only and is not investment advice.