August 28, 2026 In Our Time Chairman Kevin Warsh At “Financial Innovation: Implications for Payments and Policy,” an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming Share --> --> --> --> --> --> Watch Live Thank you. It's great to be here again and to see so many familiar faces. I've been looking forward to this weekend—what better place to mark my 100th day as Chairman? For the fine hospitality, everyone here is in debt to President Jeff Schmid and his colleagues at the Federal Reserve Bank of Kansas City. Jeff, our thanks to you all. Jeff and the other planners have some recreation options lined up for later today. And I'd advise you to be very careful with your choices. As I learned years ago, you can take two different kinds of hikes on the trails around Jackson Hole. I can sum up my hikes with former Vice Chairman Don Kohn in two words: I survived. These steely marathon death marches revealed a side of Don I wasn't ready for. There's another kind of hike—one I associate with Chairman Ben Bernanke, my old colleague. With Ben, it's a much more leisurely pace, an easy stroll along the wandering trails at the Rockefeller Preserve. So before setting out, do a wellness check and ask yourself: "Is this a Kohn day or a Bernanke day?" The best thing about this gathering is that it helps us all clear our minds and think straight about our world and our time. For me, it feels like the right place, and the right audience, for a real engagement with the ideas that matter most. Innovation is the conference theme, and I believe that the public and the markets—in their collective wisdom—understand that innovations in the conduct of policy at the Fed will help deliver price stability alongside full employment. Here is a quick overview of what I'll cover in my remarks this morning. You can call it an outline . . . you can call it a trail map . . . just don't call it forward guidance. First, I'll touch on a few of the longer-term questions we're asking at the Fed about the latest general-purpose technology, artificial intelligence (AI), and where it might take the economy. Then I'll reflect a bit on the practice of forward guidance and the interaction between the central bank and financial markets. Next, I'll present some of the key principles that I believe should guide the conduct of monetary policy. And, finally, I'll give you my assessment of the economy. Preparing for Future Policy Conjunctures With the unchanging picture of the Tetons as our backdrop, we are here to survey an economic landscape that is anything but static. It wasn't so long ago—in the run-up to the crisis of 2008 and over the decade that followed—when economists and policymakers were speaking of secular stagnation and a global saving glut. 1 It was a widely held view that an excess of capital would sit on the sidelines for a long, long time, because there just wouldn't be enough compelling investment opportunities. All the good stuff had been invented. So growth would be low and slow. 2 Well, times sure have changed. We've come to a hinge point in history. 3 To cite the clearest example, progress in artificial intelligence—the 80-year-old name for the newest technology—has been faster even than its evangelists predicted a couple of years ago. The potential for substantially higher growth is on the rise. Ever-expanding pools of capital are pouring into AI-related infrastructure of all sorts. A kind of hyper–Moore's law seems to be playing out. Scaling laws, too, are changing both the method and speed of innovation. 4 Capital and labor have combined to create the large language models at the heart of AI. Users buy tokens to gain access to the models. Reports put annualized token sales for the two leading labs alone at more than $100 billion—an increase of 500-plus percent from a year ago. The Fed watches all of this attentively. We recognize that AI is a new variable—potentially a new factor of production—that will have consequences for both the economy and the conduct of monetary policy. It opens some major lines of inquiry: Will the application of AI cause a significant, sustained rise in productivity across the economy? And if so, when? Will token usage be complementary or competitive to labor? Will the next generation of AI models demand even greater capital intensity, or will the models themselves help devise a capital-light solution? Among the other yet unknowns is the resulting market structure. It's not obvious where the returns on capital will land or on what timescale. Early on, how much of the surplus goes to owners of scarce assets—AI labs, chipmakers, energy producers, and cloud providers? Over time, how much of that value accrues to businesses and consumers? What are the broad implications for workers and for the employment side of the Fed's mandate? Likewise, we don't yet know the equilibrium price of the tokens. Might there be a heterogeneity of tokens, such that growing sums will be paid for access to the best models at the frontier? Will token prices for older models fall to the level of their marginal cost? We will be thinking through these matters with the help of a task force on productivity and jobs. My early check-ins with the leaders of that task force, and the four others, have been encouraging. To be clear, though, their recommendations will come later and have no bearing on decisions we make in the current policy conjuncture. But I believe that for future policy challenges, this intellectual investment today will leave us far better prepared. Forward Guidance and Its Stand-ins As our task forces go about their work, I am not waiting to introduce innovations at the Fed to make us fit for purpose. To highlight one example, I have set out to change the form and function of the Fed Chairman's so-called forward guidance. You might know about my long-time discomfort with early pronouncements of future policy decisions. I much prefer another path . . . and will make the case for it. Transparency in communications about future policy decisions is not a virtue unto itself. Communications must be in service to the Fed's paramount responsibility: getting monetary policy right. 5 Forward guidance as a regular practice was adopted by my colleagues and me during the Global Financial Crisis. 6 It was essential at the time, and we introduced it with much fanfare. But, as with other legacies of crises past, I believe that the practice has overstayed its welcome. In normal times, the role of forward guidance should be limited and circumscribed. Otherwise it risks creating ambiguity in the name of clarity. Oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray. 7 And I believe when policymakers make quasi-commitments on interest rates through the cycle, we inhibit our own freedom to make the right calls when it's time to decide. To get policy right, we also need to get the relationship right between financial markets and the central bank. The Fed needs clear market signals, as unfiltered as possible . . . from market internals . . . the level and change in asset prices across sectors . . . the prices and trading volumes of Treasury securities. . . the foreign exchange value of the dollar . . . the cost and availability of credit . . . and the price of a broad set of commodities. These and other indicators should inform the Fed's near-term outlook on economic activity and inflation throughout the business cycle. They should also reveal the state of broader financial conditions . . . and the risks and uncertainties in the financial cycle. At the same time, market participants themselves should be tracking real information across the economy. They should draw their own conclusions; form their own expectations of output, employment, and inflation; and stay sharply attuned to risks. The Fed should be humble and never naïve. The Fed plays an essential role in the economy and the markets. And our tools are powerful. We determine the path of short-term interest rates. And market participants will always try to anticipate what we will do next. But we should not indulge a regime in which market participants are looking primarily to the Fed for their next trade. The economic literature has long described the distorting effects: a hall-of-mirrors problem. 8 If markets rely materially on the Fed's guidance and the Fed relies on market prices, we are all more likely to be blinded to new developments . . . more likely to be caught unprepared for a turn of events . . . and more likely to commit errors in policymaking. 9 Perversely, market participants are unlikely to bear the biggest costs of the hall-of-mirrors problem. The most serious harm is likely to befall those without financial assets. If the Fed gets inflation wrong and judges the economy wrong, who gets the worst of it? Not the financial high-fliers. Hard-working Americans are the ones left to deal with inflation that is too high or jobs that suddenly appear less secure. So, if forward guidance is ill-suited to normal times, then how about the new Fed chief commits—at the very least—to an explicit reaction function? Surely, he should tell us his interest rate path—if, say, the data were to come in hot or cold. I wish our understanding of the economy were so precise as to provide a mechanical, tried-and-true answer—that some simple function like a Taylor rule could be rigorously relied upon. But our knowledge just doesn't extend that far—at least not yet—and the factors most relevant to the proper conduct of monetary policy change over time. Providing forecasts to illustrate the Fed's reaction function works better in theory than in practice, better in the lab than in the field. I'm not alone in noticing that forward guidance in 2021, to cite one example, might well have slowed the policy response to high inflation. 10 In my term as Chairman, my colleagues and I will endeavor
