The new Fed chair thinks AI could be the economy's great deflator, but not everyone on the FOMC agrees
Kevin Warsh has been Fed chairman for less than a month, and he’s already staring down the kind of question that defines legacies. The central issue: whether the massive wave of AI investment sweeping the economy will push prices down through productivity gains or push them up through sheer demand for capital, energy, and infrastructure.
Warsh, who was sworn in on May 22, 2026, held his first FOMC meeting on June 16-17. The result was a decision to keep interest rates steady, paired with a hawkish policy statement.
The 1990s playbook, revisited #
Warsh has argued that AI will lead to lower costs and enhanced productivity across the economy, functioning as a disinflationary force, comparable to the internet boom of the late 1990s. In that era, the Fed under Alan Greenspan famously let growth continue without aggressive rate hikes, betting that technology was genuinely changing the math on how much the economy could produce without overheating.
Today, inflation remains above target partly due to pressures from the Iran conflict, creating a much messier backdrop for monetary policy decisions.
Some Fed officials aren’t buying the optimistic narrative. Several have pointed to potential short-term inflationary impacts from AI-related investments themselves: the massive data center buildouts, the surging demand for chips and power, the billions being poured into infrastructure. Those skeptics suggest there could be a need for higher rates later in 2026 if inflationary pressures don’t cool.
A crypto-friendly chairman with a careful hand #
Warsh disclosed holdings in multiple crypto firms as part of his Senate nomination process and has referred to Bitcoin as an “important asset” for policymakers.
In a June 2026 vote on new stablecoin policies, he abstained, even as other Fed governors, including his predecessor Jerome Powell, voted to approve.
Warsh previously served as a Fed governor from 2006 to 2011, a period that included the global financial crisis. He was nominated by President Donald Trump for the chairmanship in early 2026 and confirmed by the Senate in May.
What this means for investors #
If Warsh’s thesis about AI-driven disinflation proves correct, the Fed would have justification to lower rates. Lower rates reduce the opportunity cost of holding non-yielding assets like Bitcoin and make speculative investments more attractive relative to bonds. A Fed chair who views Bitcoin as an important asset and who has personal financial exposure to crypto firms represents a meaningful shift in tone from the top of the US financial regulatory apparatus.
The risk is that the massive capital expenditures required to build AI infrastructure drive up costs in the near term without delivering the productivity gains quickly enough, forcing the Fed to raise rates instead. If energy costs from the Iran conflict spike further, Warsh could find himself unable to cut rates because of supply-driven inflation while presiding over an economy pouring capital into AI buildouts that won’t pay productivity dividends for years.
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