Fed Holds Rates in 10-2 Vote; Warsh Says Interest Rates Matter for AI Investment
By Jacqueline Policastro | Quincy News Correspondent
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Washington (Quincy News) — The Federal Reserve held interest rates steady Wednesday, with Chair Kevin Warsh saying borrowing costs are affecting artificial intelligence investment as policymakers weigh their next move against persistent inflation and a strong economy.
The Federal Open Market Committee voted 10-2 to maintain its benchmark federal funds rate at 3.75% to 4%. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, preferring a quarter-point increase.
Warsh also announced plans to reserve some of the Fed’s eight annual meetings for discussions of monetary policy strategy.
Starting next fall, one meeting in 2027 will be devoted exclusively to strategy, with no rate decision or policy statement anticipated, leaving seven policy-setting meetings. In 2028, he expects two strategy meetings and six policy-setting meetings.
Interest rates and the AI buildout
Warsh challenged the idea that the AI investment boom operates beyond the reach of monetary policy.
“Interest rates get in the cracks. Interest rates affect directly or indirectly almost everything,” he said at his post-meeting news conference.
WestCap founder Laurence A. Tosi, a former CFO of Airbnb and Blackstone, raised similar concerns in an exclusive Quincy News interview. His investment firm reports $6 billion in assets under management and 38 portfolio companies.
Tosi described high interest rates as “one of the largest threats to the AI buildout” and warned that financing conditions were already becoming more difficult.
“Already spreads are widening across the AI trade,” Tosi told Quincy News, pointing to “an unusual amount of correlated systemic risk.”
Wider credit spreads mean investors are demanding more compensation for lending, adding to financing costs for businesses seeking capital.
Warsh said Wednesday that investors have become more selective since early September, with credit spreads widening for some assets and financial conditions tightening.
On whether interest rates matter for the technology investment surge, he said, “I believe they do, and I don’t believe that they’re somehow divorced from the rest of the economy.”
Inflation remains the focus
The FOMC said in its statement that “economic activity is expanding at a strong pace,” citing resilient domestic spending, robust investment and little change in unemployment. Inflation, however, remains above the Fed’s 2% target.
Warsh said energy prices have risen again in recent weeks, and the Fed must keep those increases from spreading more broadly through the economy.
“It’s our responsibility to get inflation down,” he said, adding that financial conditions have tightened since the Fed’s September action, but he would not characterize them as tight.
Cook hearing draws questions
Cook’s dissent came as she faces a White House inquiry into allegations that she made false statements on mortgage documents. Cook has denied wrongdoing.
The White House scheduled a hearing for Nov. 5, but her attorney said she could not attend because of official commitments in Europe and would not be available until after the Fed’s December meeting.
The White House defended the proceeding.
“President Trump is performing his constitutional duty in evaluating Lisa Cook’s conduct and eligibility to continue serving as a governor on the Federal Reserve,” White House spokesperson Matthew Middleton told Quincy News.
Middleton said Trump is offering Cook an in-person hearing “that will be conducted in a fair and open process.” The White House memorandum establishing the inquiry says the hearing will be closed to the public but transcribed.
Asked Wednesday whether he personally, or the Federal Reserve as an institution, would be involved in the proceedings, Warsh replied: “Not to my knowledge.”
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