What is the Kevin Warsh case for fed rate cuts?

“Kevin Warsh spent the past year constructing a case for the Federal Reserve to deliver the interest-rate cuts President Trump wants: An artificial-intelligence boom would soon deliver a productivity surge that would hold down prices.

When Warsh appears Tuesday in front of senators for the confirmation hearing that could put him one step closer to leading the central bank, his toughest audience could be his future colleagues. They have been delicately but unmistakably signaling their pointed skepticism.

If confirmed, he stands to inherit a Fed caught between a technological shift that has yet to hold prices down and a fracturing geopolitical landscape that keeps threatening to push prices up. The Iran war has been the most recent and sharpest example.

In the run-up to being chosen by Trump in January, Warsh’s case had been straightforward: The economy would grow steadily on the back of AI, but slower inflation wouldn’t show up in the official data for some time, creating a conundrum for evidence-based central bankers. “So they’re going to have to make a bet,” he said on a financial podcast last fall.

The economic logic works like this: AI makes existing workers more productive, so companies can pay workers more without raising prices. Or they can produce the same amount with fewer workers, lowering labor costs. Either would keep inflation in check and deliver room to cut rates without worrying about reigniting price pressures.

In a Fox Business interview last fall, Warsh signaled alarm that without the right leaders, the Fed wouldn’t make that bold call. “What worries me, and I suspect what worries the president, is the Fed’s going to make its sixth or seventh big mistake in the last six or seven years,” he said. “They’ve got to allow” the productivity boom “to continue to lower prices, instead of saying, ‘Oh my gosh, the economy’s too strong. We better stop this.’” “