Bitcoin returned above $60,000 on Wednesday, after previously being under pressure. The reason was comments from Kevin Warsh: he stated that the risks of accelerating inflation in the U.S. no longer seem as serious as before.
For the market, this sounded like a calmer signal from the Fed. At the same time, Warsh made it clear that the Fed is not yet celebrating victory over inflation. According to him, the regulator does not intend to change its targets and still aims to bring price growth down to 2%.
These statements were made at the annual meeting of the heads of the largest central banks in Sintra, Portugal. When the conversation turned to the Fed’s next steps, Warsh preferred not to make forecasts and did not say what to expect from the next meeting. According to him, officials will discuss new economic data at the meeting, which will take place in four weeks.
The main point he emphasized was that the Fed is not abandoning its inflation target.
“Inflation risks have decreased. If any households, businesses, or financial markets thought this central bank would tolerate inflation above 2%, they will be disappointed. We will ensure price stability in the U.S.,” Warsh said.
After these statements, bitcoin recovered some losses and once again rose above $60,000. Over the past 24 hours, the cryptocurrency has gained more than 2%.
Warsh also separately spoke about artificial intelligence. According to him, AI could seriously change the U.S. economy and even affect monetary policy.
Currently, the boom around AI is already leading to increased capital expenditures. So far, this is mainly seen on the demand side, but in the future such investments could expand the production capacity of the economy.
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Warsh noted that companies previously often focused on financial instruments such as share buybacks. Now the situation is different: businesses are investing money because they expect AI to boost productivity.
If these investments really increase the economy’s capacity, the consequences for monetary policy could be enormous. But, according to Warsh, it is still too early to draw final conclusions.
The discussion also included ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem. Overall, they agreed that central banks should rely less on strict forward guidance about future decisions.
Lagarde said she regrets moments when she felt bound by such promises. Instead, she supports a more flexible approach: the regulator explains how it makes decisions, but does not set a predetermined path for rates.
Warsh expressed a similar view. According to him, the main task of the Fed is to make the right decisions. And if any communication tools interfere with this, it is better to abandon them.
