Kevin Warsh says AI productivity could justify Fed rate cuts

Kevin Warsh, the man Donald Trump wants running the Federal Reserve, says the U.S. doesn’t need high interest rates anymore. He’s convinced that artificial intelligence is about to flood the economy with so much productivity that the Fed could start cutting rates and keep going, without sparking inflation. Kevin, who served on the Fed board years ago, says the AI explosion is “the most productivity-enhancing wave of our lifetimes; past, present, and future.” He’s betting this tech wave gives the Fed a rare chance to ease borrowing costs without risking price spikes. Kevin says he’s taking a page from Alan Greenspan. Back in the ’90s, Greenspan ignored traditional data and used weird signals and anecdotes to justify keeping rates low. “Greenspan believed based on anecdotes and rather esoteric data that we weren’t in a position where we needed to raise rates,” Kevin told Sadi Khan of Aven Financial. “As a resul,t we had a stronger economy, we had more stable prices.” Trump officials line up behind rate cut push The rest of Trump’s team is right behind Kevin. Treasury Secretary Scott Bessent told CNBC this month, “It’s clear that we are at the nascent stages of a productivity boom, not unlike the 1990s.” He urged people to read Bob Woodward’s Greenspan biography to understand how the Fed once let the economy “run hot.” Trump himself wants interest rates slashed aggressively before the elections, down from the current 3.5–3.75% range to closer to 1%. Greenspan pulled off his strategy in 1996. He walked into a Fed meeting and told everyone productivity was growing faster than the official stats said. “Many people were completely unconvinced,” said Janet Yellen, who was then running the San Francisco Fed. She said Greenspan’s explanation was hard to follow, but “he was absolutely right.” Eventually, all but one member of the Fed’s rate-setting group sided with him, keeping rates low with a warning they’d raise them only if inflation started creeping in. Now, three decades later, Kevin says he’s ready to do the same. Powell, who Kevin is set to replace in May, doesn’t seem too skeptical either. “There will be some disruption,” Powell said in January, “but ultimately technology increases productivity, which is the basis for rising wages.” Fed Governor Lisa Cook added this week: “Growing evidence shows that AI has the power to significantly boost productivity.” Vincent Reinhart, who used to attend Fed meetings, agrees that AI is “certainly tilting up the path for expected output,” though he adds it isn’t doing much for real productivity yet. Critics say AI hype doesn’t match real data yet Not everyone’s buying Kevin’s confidence. Many economists say the AI wave is driving investment and market gains, but not expanding the economy’s actual output, at least not yet. They warn that this demand surge could heat up inflation before any productivity payoff shows up. “If it turns out that there’s going to be a bunch of spending now and you’re not going to get the benefits [on productivity] for a while, then that’s probably going to create a little bit of pressure on inflation,” said Anil Kashyap of the University of Chicago’s Booth School. Kevin doesn’t seem worried. He says AI will flip the job market upside down within a year. “Things that are unimaginable” will become normal for the most advanced companies. He’s spent years inside the tech world, both at Stanford’s Hoover Institution and managing investments for Stanley Druckenmiller. Druckenmiller says Kevin understands AI’s speed and disruption better than most macro guys because he actually worked in it. Still, many are skeptical. Daron Acemoglu, who has a Nobel prize, says the numbers don’t back up all the AI talk.“Neither economic theory nor the data” match the optimism, he’s written. James Knightley from ING agrees. “I just don’t see the evidence being in place yet,” he said. He warned that a true AI revolution probably won’t happen in the next two years “without real pain in the labour market.” Kevin may not get that long. If confirmed by the Senate, he takes over in May. The pressure to cut rates fast will be huge, especially with midterms looming. Fed forecasts show only one cut this year. That leaves the benchmark rate way above Trump’s 1% target. If Kevin wants to pull off a Greenspan-style move, he’ll have to back it up with more than words. “Greenspan’s hunch was backed up by digging in, digging underneath and finding things that other people hadn’t found,” said Don Kohn, former Fed vice-chair. “It wasn’t just an assertion — wages were rising, profits were high, and inflation was low.” Janet Yellen said Greenspan “did an enormous amount of research on his own. He really tried to make the case using a lot of economic data.” Kevin will have to do the same, fast. If you're reading this, you’re already ahead. Stay there with our newsletter .