Warsh Sounds Inflation Alarm, Warns of Potential Interest Rate Hike

US Federal Reserve Chairman Kevin Warsh has sounded an inflation alarm, warning that interest rates could rise despite a resilient economy and growing investments in artificial intelligence.

In a speech at the Jackson Hole Economic Symposium on Friday, Warsh noted that while labour markets remain stable and output is solid, the inflation rate remains concerning. The Fed's preferred measure of inflation stands at 3.7% over the past 12 months, with a six-month change of 4.1%, far above the central bank's target of 2%.

Warsh emphasized that policymakers must be confident that underlying inflation is moving towards their objective quickly enough. While this summer's personal consumption expenditures and consumer prices index readings were better than expected, they do not indicate meaningful improvement in inflation trends, he said.

The chairman also addressed the transformative potential of AI for the broader economy, stating that progress has been faster than experts predicted just two years ago. The central bank is watching developments attentively, as artificial intelligence could become a new factor of production.