Kevin Warsh Says AI Productivity Could Open Path to Easier Fed Policy

If confirmed as Fed chair, Kevin Warsh will press the view that rapid productivity gains from AI can create sustained disinflationary pressure, opening room for lower policy rates. He likens the potential AI-driven efficiency surge to productivity shifts seen in the internet era and intends to persuade a 12-member Federal Open Market Committee that remains split over inflation risks. The practical question facing Warsh — and the committee — is whether measured total-factor productivity will accelerate broadly across industries or remain concentrated and transitory. Several senior Treasury and White House officials publicly back the notion of a nascent productivity boom, but many current Fed officials, including Jerome Powell, Christopher Waller and Lisa Cook, acknowledge AI’s upside while urging caution about its pass-through to prices. Regional voters such as Cleveland’s Beth Hammack and Dallas’s Lorie Logan have catalogued corporate gains from AI yet warned those examples do not automatically justify sizable cuts in the near term. Outside economists have sketched scenarios for aggressive easing under Warsh — Brookings’ Robin Brooks, for example, outlines a conditional path that could total roughly 100 basis points of cuts concentrated between June and October — but such a sequence would depend heavily on confirmation, committee alignment and convincing cross-sector evidence of durable productivity gains. Markets have already reacted to the nomination signals: prediction-market odds on platforms like Polymarket and Kalshi surged, bitcoin slid from the mid‑$80,000s toward $75,000, precious metals fell and the dollar strengthened as traders repriced the policy outlook. Political and legal headwinds add uncertainty: a Justice Department inquiry tied to developments in Washington has prompted at least one senator to announce a hold, which could delay committee action and complicate a smooth confirmation. Operational constraints at the Fed — including the logistics of managing an ample-reserves regime, monthly bill purchases, reinvestment plans and interactions with Treasury issuance — mean that any reduction in the Fed’s market footprint must be sequenced to avoid unintended tightening in money markets. The heavy near‑term Treasury rollover schedule and short-term issuance amplify the sensitivity of public finances and money-market plumbing to shifts in reserve abundance and term premia. For Warsh, the immediate tasks are twofold: build empirical buy‑in among colleagues by translating anecdotes into robust, cross‑industry productivity metrics, and navigate confirmation and operational frictions so that any doctrinal tilt toward easier policy can be implemented without destabilizing short-term funding conditions. Absent clear, economy‑wide productivity acceleration, the Fed’s baseline for anchoring inflation expectations and setting policy would likely remain unchanged, preserving the institution’s current inflation-first posture.