Regardless of whether Warsh is in office, the long-term policy pressure on the Federal Reserve will remain interest rate cuts. Of course, Warsh's announcement of abandoning forward guidance essentially pushes the policy system itself into a state of ambiguity. On August 28th, Federal Reserve Chairman Kevin Warsh delivered a speech titled "In Our Time" at the Jackson Hole Economic Symposium. If we were to add a qualifier to the era mentioned in the title, "ambiguous" would be most fitting. Warsh broadly described the many ambiguities of the current era regarding the US economy: First, with massive capital investment in artificial intelligence, computing power is accelerating far beyond Moore's Law; when will this acceleration peak? Second, can the expected returns on these investments truly translate into financial reality? Third, will artificial intelligence technology truly significantly improve economic productivity? Fourth, how will the capital returns resulting from increased productivity be distributed among social groups? Will tokens lead to large-scale substitution of human resources, thereby significantly increasing the unemployment rate? Based on Warsh's speech, this article focuses on the following three points. The Fed's abandonment of forward guidance is more beneficial than harmful. Due to the uncertainty of the future, Warsh argues that the Fed's monetary policy is no longer suitable for forward guidance—if the outlook is already unclear, especially if the actual situation on the "supply side" of the economy (production efficiency, capacity, business expectations, etc.) is not fully understood, then forward guidance is impossible. Especially when the market lacks a clear path, there's a tendency to rely on the Federal Reserve's guidance for decision-making. Conversely, the Federal Reserve relies on market-driven prices for guidance. This "mirror effect" can cause the market and policy to deviate significantly from the actual economic situation. The author agrees with this view. If policy cannot precisely anticipate market trends, then adhering to a reactive approach is more prudent, at least avoiding amplifying market volatility. Of course, Warsh still offered many positive descriptions of the fundamentals of the US economy. These positive descriptions include the following: corporate capital expenditures are driving high investment growth; corporate profits are also growing rapidly while stock market volatility is low; bank loans are providing ample liquidity to the economy; consumer spending is growing steadily while unemployment pressure is not high; and although inflation has not yet fallen to 2%, it has significantly declined compared to pre-pandemic levels. While the ambiguous historical context makes forward guidance "inconvenient," the fundamentals of the US economy make it "unnecessary." Warsh believes that whether interest rates are raised or lowered, it is necessary to wait and see, and there is no need for the Fed to provide guidance prematurely, although data shows that prices remain an important indicator of the Fed's concern. The market interpreted Warsh's statement as "hawkish," and Trump subsequently called on the Federal Reserve to cut interest rates again. In reality, whether the Fed chooses to raise or lower rates now, it will face strong criticism. From this perspective, there is a strong "reluctance" to abandon forward guidance. Behind this reluctance lies a part that Warsh did not mention in his meeting. This fact not only exacerbates the already divided debate and conflicting interests surrounding rate hikes and cuts, but also reveals that the fundamentals of the US economy may not be as robust as Warsh described. The trends of the US dollar and US Treasury bonds are not as optimistic as the fundamentals suggest. First, let's talk about the US dollar. If we use gold prices as a reference, gold prices and the US dollar index show a fairly strict mirror relationship: when the US dollar index strengthens, gold prices fall. However, since the second half of 2023, gold prices have experienced an unprecedented surge, which means that relative to gold, the US dollar has actually experienced an unprecedented decline. Of course, such a direct comparison seems somewhat far-fetched, as other currencies have also fallen sharply relative to gold. However, considering the direct mirror relationship between the US dollar and gold, and the very high risk-free interest rates in the US financial market (generally exceeding 4%), such a surge in gold prices does indeed "question" the credibility of the US dollar. Behind this lies the global economy's response to US strategic conservatism. This response is mainly manifested in de-dollarization. The US dollar's share of allocated global foreign exchange reserves fell from 65.4% in 2016 to 57.13% in the first quarter of this year. Even without a significant downward trend in the US dollar index itself, central banks' balance between gold and the dollar has shifted significantly. By early 2026, the estimated value of gold reserves held by non-US official institutions (central banks) (approximately $3.8 trillion to $4 trillion) will exceed the value of their holdings of US Treasury bonds (approximately $3.88 trillion) for the first time. Speaking of which, the recent trend in US Treasury yields, particularly long-term US Treasury yields, has attracted market attention. Since 2024, the Federal Reserve's policy rate (the effective federal funds rate) has been continuously lowered, but yields on 10-year and longer-term Treasury bonds have been continuously rising. This phenomenon arises because, on the one hand, the surge in investment and financing demand driven by AI capital expenditures suggests that some borrowers may genuinely be short of funds. On the other hand, the US is suffering from a "fiscal crisis." While the total US debt has surpassed $40 trillion, its net external debt has reached $21.9 trillion. During the implementation of the "Greater America Act," tax cuts were easier than spending cuts, and coupled with the Federal Reserve's balance sheet reduction, increased issuance of US debt has had to increase issuance costs. Thus, the weakening of the dollar is a "monetary crisis," and the weakening of US debt is a "fiscal crisis." These two crises leave the Federal Reserve caught in a dilemma between raising and lowering interest rates. The fiscal crisis necessitates that interest rates not be raised, otherwise, the increased cost pressures on the financing and fiscal systems would harm economic growth. The monetary crisis necessitates that interest rates cannot be lowered, otherwise the credibility of the US dollar will weaken further, de-dollarization may accelerate further, the Triffin paradox will intensify the weakening of the dollar's advantage, and holding dollar assets may become even less cost-effective. While Warsh has consistently emphasized that maintaining the dollar's credibility requires combating inflation, it seems that, aside from inflation, all the pressure points to interest rate cuts, at least in the medium to long term, where the pressure to cut rates far outweighs that to raise them. Currently, the cost of AI investment and financing is very high, and interest rate hikes may lead to a major stock market correction under a K-shaped divergence. To improve the certainty of investment returns, interest rate cuts could also promote the continuation of current AI investment. To reduce the pressure of huge external debt, it seems that interest rate cuts could utilize a weaker dollar to alleviate some of the external debt pressure, and domestically reduce the interest payment pressure on the Treasury. While interest rate cuts may indirectly amplify inflationary pressures, they will alleviate employment pressures by promoting growth in non-AI sectors such as real estate, construction, durable consumer goods, industrial machinery, and finance. As for the uncertainties in the employment and wealth structures brought about by AI, they have actually far exceeded the scope of the Federal Reserve's regulation. One path is that AI significantly reduces production costs and increases efficiency; for example, AI robots quickly become physical entities, and tokens replace labor. In this case, AI ultimately brings deflationary pressure. This path seems to support interest rate cuts. Another path is that, against the backdrop of slowing overall economic growth, a money-grabbing effect emerges between sectors (e.g., the upward trend of a K-shaped economy "grabs money" from the downward trend). AI investment crowds out investment in other sectors, creating output gaps and thus contributing to inflation. Under this path, interest rate hikes would likely only further amplify the money-grabbing effect. Therefore, regardless of whether Warsh is in office, the long-term policy pressure on the Federal Reserve will remain interest rate cuts. Of course, Warsh's announcement of abandoning forward guidance has essentially pushed the policy system itself into a state of ambiguity. Whether the AI era will bring deflation or inflation, create or destroy jobs, boost or squeeze out which sectors—these questions remain unanswered. The only certainty is the differentiation itself: the gap between assets and labor, technology and non-technology, and those within and outside the AI ecosystem may continue to widen in this ambiguity. The Fed wants to shift to a data-driven approach, but what if the data itself is fragmented and contradictory? For example, the upward trend of a K-shaped economy requires interest rate cuts due to financing costs, while the downward trend requires interest rate hikes due to inflationary pressures. How should the Fed decide in such a situation? For ordinary people, this paradox and the ambiguity of the times imply at least three things. First, on the asset side, uncertainty in returns will become the norm. Betting on a single interest rate scenario may be dangerous. Diversified allocation and a certain proportion of gold allocation are less of an investment strategy and more of an insurance policy against the ambiguity of the system. Second, on the income side, the source of job security is shifting from "job stability" to "transferable skills." Before tokens massively replace labor, human capital investment is the asset with the highest certainty of return in this era of ambiguity. Third, on the leverage side, the biggest risk in this era of ambiguity is not valuation fluctuations, but liquidity depletion—policies no longer provide advance notice of inflection points, leaving individuals with a shorter window of opportunity to adjust their balance sheets. A safety cushion may be far more important than a few percentage points of yield.
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