After taking office as Federal Reserve chair, Warsh faces an immediate policy test: how to interpret the current boom in artificial intelligence. The question is not only about technology, but about the macroeconomic nature of the boom. If it looks like a 1996-style productivity dividend, the case is stronger for holding policy steady. If it looks like a 1999-style surge in overheated demand, the argument shifts toward raising rates earlier.
Two readings of the AI cycle
The article frames this choice through two historical episodes associated with Greenspan. In the 1996 comparison, the key issue is productivity improvement, which gives policymakers more room to tolerate economic expansion. In the 1999 comparison, the key issue is excessive demand, which requires monetary policy to tighten sooner. Warsh’s difficulty is that artificial intelligence can affect both sides at once: it can improve supply while also driving investment, consumption and broader demand.
For that reason, Warsh’s judgment will influence the inflation path, the rhythm of policy decisions and the credibility of the Federal Reserve. Treating the AI boom as a supply-side improvement would support a more patient stance. Treating it as demand overheating would bring earlier rate hikes into the policy debate. The article presents this as the first major macroeconomic question Warsh must answer after taking the Fed chair.