A very good morning to everybody in the audience and those who may be watching in the overflow room. There is a great deal of interest in this conversation because of who it is with. I am delighted to introduce Chairman Kevin Warsh. For those of you who may not be fully familiar with his incredible professional career, let me say a couple of words. Chairman Warsh was a keen scholar of policymaking throughout his entire life. He spent his career at this intersection of monetary policy, finance and economic policymaking, and he has been able to look at issues that concern not only the financial system but the lives of people from multiple perspectives: as an academic, in the financial markets, and in the public sector.
So where did he come from? Just before he took over the chairmanship of the Federal Reserve, he was Shepard Family Distinguished Visiting Fellow in Economics at the Hoover Institution, a lecturer at the Stanford Graduate School of Business, and a partner in Dukas Family Office. He came to those from working at Morgan Stanley. He advised President George W. Bush on capital markets and banking issues. But my favorite part of Kevin's career is when he first was at the Federal Reserve — at what time? In the most challenging and taxing time. He was there during the global financial crisis, and he was there as the youngest ever governor at the age of 35. And now he's now 36.
He has very deep, impressively deep understanding of financial markets. Instrumental in navigating one of the most complicated periods in recent history, and set the table with those who had made at that time critical decisions — the most consequential decisions for many in their lifetimes. So he saw crisis from the inside. I do not wish you ever to repeat this experience. And as we all know, in May this year he became a chairman of the Federal Reserve. Great choice.
I can say with admiration that you bring, of course, a lot of experience, but one quality that you bring that I rarely see is you have a profoundly thoughtful response to questions, and you never shy away from listening to opinions that may be different from yours. Now, I can say when Kevin agreed to be here, I thought, okay, so let me see how we can get the conversation that is about the broad transformational trends and dig deep into your thinking.
I want to start from where the world is today. We are here at the annual meetings. We talk about a resilient world economy, but also about the fragility of this resilience, the divergence across countries. We discuss what are the sources of resilience? Could they continue? Would they last? What it would take for them to last? And I thought that it would be a great start for today to hear from you. How do you see the world economy? How do you see that resilience on which we have been relying — will it last? What is your advice to policymakers? How they orient themselves in a time of higher uncertainty?
So first of all, thank you very much, Cristina. Full disclosure: Cristina and I are old friends. So those questions sounded harder, but there's some softballs coming, I presume. So the only part of that biography that Cristina read that I will differ with is she said her favorite part of my resume is the global financial crisis. That is not my favorite part. And when I come back to meetings of the IMF, come back to meetings of the G20, I'm obviously incredibly honored to be in this post. This is a hugely consequential time. But when I walk into the IMF, when I come to these meetings, I will say I still have a little bit of scar tissue from the deepest, darkest days of the global financial crisis. I might be over-scarred from that period, but better over-scarred than under-scarred, I presume. So, we can go in any direction you want. I think you were asking about the state of the global economy.
So what I've tried to do, which might be a little bit of a change for policymakers, is look outside the window. In our business, in economics, in policymaking circles, we can focus on the past, on the history, and look at data which we think of sometimes as contemporaneous data, but it's really lag data. It's about what happened. We can also focus a lot of our time and attention on the future. We certainly want to know what 2027 and '28 are about. But none of us are perfect forecasters. So what I try to do in thinking about what's going on is I try to look out the window as clearly as I can at the Federal Reserve, where we do that about eight times a year when we sit down for these FOMC meetings. We did that, I don't know, a month or so ago at the September meeting, and we came to a judgment. What are we seeing in the global economy as it affects the US? I'm going to say broadly over the month or so that's transpired since then, the world has broadly conformed to our expectations.
We'll be meeting a couple more times this year, and that will be the crystallizing moment at which we're going to look out the window. What do we see? What's happening to output? What's happening to employment? What's happening to inflation? And in those intervening periods, especially occasions like this when Cristina and I get to sit down without the cameras and the microphones, and I get to sit down with my G20 colleagues, I'm doing at least as much listening as I am talking. Obviously, the Federal Reserve and our policies spill over to the rest of the world, but their policies spill back to us, too.
So, I had made judgments about a month ago. I'll make some judgments at the October meeting and the December meeting, but broadly, let me just step back and give you now slightly dated views which probably still hold. One is, 20 years ago at meetings like this, we talked about secular stagnation. Boy, that seems — I don't know if it was as inaccurate then as it seems now, but right now we have structural growth. We have an investment surge. It's not hitting every country at the same rate. But in the United States, we're having a massive investment surge. And it makes me think, Cristina, the idea of secular stagnation suggested that that was somehow inevitable. There was nothing policymakers like you and me could do about it. If we learned anything since my last time sitting in a post like this and now, there's a lot we can do about it. Policy matters. The investment surge isn't by accident. It's because of the consequence of good policy, both macroeconomic policy, but also, as you've heard about in the last week or two from new Nobel Prize winners, the micro foundations. And decent macro policy and strong micro foundations can lead to an investment surge. It's probably the most important thing that's happening in the global economy on the upside.
But to be balanced, as we central bankers have to be. You know, I came out of meetings here yesterday and today, and it's hard to be in a discussion with central bankers and not compare notes and hear the same thing about the surge in prices. Obviously, it affects each of us differently. At the Federal Reserve, we made very clear that we would deliver price stability, and we removed a dose of accommodation about a month ago. I don't prejudge meetings. I don't believe in saying now what I might do at the meetings that we have in the balance of this year, but that was the situation. Disappointed half of the audience or more. They can all turn it off. It's a new chapter at the Fed, and we're not in that business anymore, but we can go in any direction you'd like.
Well, this is a very good direction. So we talk about the — you rightly say you look out of the window. What we see is an economy that in some places is booming. It is being dragged upward mostly by enthusiasm about AI. But then you go into other places and other factors, especially the impact of war, it's dragging economies down. One thing that is happening everywhere, whether your economy is going up or it's going down, is the stubborn inflation, price pressures that are coming from everywhere. And one of the sources, of course, is the energy shock in the Middle East and the energy shock from war. But one of the sources is this investment enthusiasm about AI. So my question is: from a monetary policy perspective, how should we think about the impact of AI in the short term, in the long term? Is there anything that we are paying too little attention, should be paying more attention today?
Yeah, so it's a great question. A couple of things. Firstly, you pronounce it AI in the US; we now pronounce it SI, just so you know. So it's probably — Can I say potato, potahto? That's right. It was just a — I don't know how that's going to translate for the countries around the world with teams of folks.
I'd say the advent of this new technology is probably the most consequential change to the US and the global economy in my lifetime to this point. So I take it seriously, but as a central banker, also soberly, responsibly. I'd say it's going to do several things. First, it's obviously hitting the demand side of the economy before it's going to hit the supply side of the economy. So if you're a central banker and you're in the business of trying to ensure stable prices and full employment, you've got to recognize this is a shock, but it's a positive supply shock in the medium term. I do fundamentally believe that. But on the path to that positive supply shock, we're seeing increases in aggregate demand. That just is what it is. But I think of this shock differently than those other shocks you talked about, shocks of war and military conflict and the rest. This one, there really is, I think, a huge benefit to the global economy, to the US economy over the horizon.
So that's one comment. Second, it's a big deal for central banks because we're in the business of trying to, in some ways, distill noisy data all over the world. We get some of that from official statistics in the US, from the Bureau of Labor Statistics, the Bureau of Economic Analysis. We torture data with old-fashioned models to try to find out what's underlying inflation trends. Not so long from now, it won't be torture. We will have access at the fingertips of central banks to all the information in the world, and we'll be able to use new analytical tools to distill that data. So when we get new information, we're going to have a lot more confidence in what it tells us as we're looking outside the window and saying, is that real or is that lagged and noisy data subject to mismeasurement? So I think it's going to fundamentally change the conduct of monetary policy as a second point.
Third, it's going to change the real economy. We don't know in the next 12 or 18 months its effect on employment. But if you believe, like I believe, which is it will make economies and countries that put it to good use more productive, that it's going to make it so that we will have more wealth, then that has to be a very good thing. But the path from where we are to there is likely to be a very bumpy one. Bumpy in our understanding of the technology. Bumpy because we really don't know what the market structure is going to be of these new technologies. Who's going to get to make the money? What are the consequences for those that bet that they were going to make money, but the market structure doesn't allow it? 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. And 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. So our job as policymakers is to take it with that same kind of focus.
I'll just say one more thing on big, hard questions that don't matter much to the current policy conjuncture. My view is we at the central bank need to invest in the next policy conjuncture. So among the external task forces that I initiated about four or five months ago is one on productivity and jobs. We're going to have our first field hearing of a task force on November 16th in the Bay Area where we're going to wrestle with these issues. I'm pretty sure I've got the right questions, not sure I have the right answers. And so we've got a group of outside experts both on the task force and people in the broader community to help us engage on that. And hopefully there'll be fruits of that not just for us in the US, but these efforts that we're doing and investigating at the Fed. These are global public goods, and the IMF might, other G20 central banks might learn, decide to adopt some of these things their own. That's the hope and expectation. The better they do, the better we do.
Very much look forward to that. So to avoid the linguistic controversy, let's call it the NHI — the non-human intellect. Okay. So if we look at that development that is incredibly rapid, we do have to think about the impact on inflation, short and long term. We do have to think about impact on financial stability, and as you said, there is the excitement of what it may mean for productivity. On this triangle of inflation, possibly disinflation in the future, the impact on financial stability risk, and the upside on productivity — which one are you most... your task force is to concentrate most on? What is in your view the one issue that dominates monetary policymakers?
Yeah. So first, here's my working proposition about task forces, because I've been on task forces like you have before we were in these jobs. You want to ask them the questions, and to be full disclosure, I check in with each of my five task forces periodically. But you also want to let them be themselves. The idea of the task force on productivity and jobs, on data collection, on inflation, is to let them produce new intellectual capital and to drop that on the Federal Open Market Committee, to share their views with the broader audience and see whether that catalyzes new thinking. Otherwise, you and I and our peers in central banking, we could just push the same ideas around. The idea is to really let them do it.
There are tail risks associated with all shocks. I'm not going to try to bite off one tail and say it's all to the good. What I'd say is the US is investing through the private sector capital in a range of new technologies, in a range of new companies with bets on different parts of the market structure. In my business, we don't have to figure out who's right or wrong. That's what financial markets are for doing. But we do want to step back and ask ourselves the question: if various scenarios were to happen, what are the implications for our remit? As you know, we talk about it as stable prices and full employment, but inching into that again, you know, with the history of my visits to the IMF 20 years ago, we also want to think about financial stability risks. And the way I think about it might be a little bit different.
I don't think the central bank or the international policymakers said that we should be in the business of stopping variance away from some modal outcome. We've got to want to ask ourselves, though, are there negative tail-side risks that we can do something about? And we have to be pretty humble about that question. I've given the task force every ability to sort of ask themselves what are the upsides, what are the downsides, and what are the implications for us. The same way I'm not going to prejudge FOMC meetings, I'm going to try not to prejudge where they come from.
Task forces. Yes. Very good. By the way, Kevin says we both have been on task forces. He was leading one that resulted in the Queen of England reporting the results to the Parliament. So it's a very special chairmanship you offer. Now, I counted, Kevin, today is your 148th day on the job, and actually there is a little risk in my calculation because it depends whether you calculate in Washington or here in Bangkok, but we are about there. So what is it that you have reached a conclusion now that you didn't have on the first day? How do you see moving into the job further?
