Warsh recruits all-star team, AI experts to kickstart Fed reform

From Walmart to the Nobel Prize, Federal Reserve Chairman Kevin Warsh went long and deep in his quest to kick off massive reforms of the U.S. central bank’s operations — changes he and others, including Treasury Secretary Scott Bessent, have argued are long overdue.

Fifteen outside experts including former central bankers, academics, business leaders and even a college pal of Warsh who made it big in tech venture capital are co-leading five Fed task forces. 

The focus: improvements and upgrades to support the Fed’s dual mandate of labor and inflation plus its balance sheet, communications and data with a spotlight on the role of artificial intelligence.

“Each task force will carefully consider whether policymakers’ means and methods, analytical tools and policy approaches can be improved upon. I am honored that the best minds from a range of disciplines have agreed to work with us to sharpen our performance as an institution,’’ Warsh said in a July 9 statement.

He announced the formation of the task forces following the July 17 Federal Open Market Committee meeting, his first as chairman of the world’s largest central bank.

He then set about personally recruiting the co-leads, who are not being compensated for their efforts. They will work with Fed staff to deliver recommendations by the end of the year to the FOMC.

“The goal is straightforward: to ensure the Fed is best positioned to achieve our objectives in this consequential time,’’ Warsh said.

Will AI lead the Fed to lower interest rates?

Warsh, who served as a Fed governor from 2006 to 2011, made AI a key speaking point of his campaign to take over as chair of the central bank.

His arguments have been that use of AI will lead to massive improvements in the productivity of people and businesses that will allow for lower interest rates without higher inflation.

“If we do our jobs, we’ll be here a year from now and we’ll say we’ve discovered data that helps us make better decisions,” Warsh said at a conference I covered on July 1. 

 The Fed’s dual mandate from Congress requires maximum employment and stable prices.

• Lower interest rates support hiring but can fuel inflation. This risks fueling further inflation, potentially leading to an inflationary spiral.
• Higher rates cool prices but can weaken the job market. This increases the cost of borrowing and further stifles economic activity.

Fed Communications Task Force 

Will review how the Fed conveyspolicy deliberations and decisions amid uncertainty.

• Peter R. Fisher, professor of practice, Foster School of Business, University of Washington. He is a former Treasury and New York Fed official. 
• Arminio Fraga, founder and chairman of Gávea Investimentos and former president of the Central Bank of Brazil.
• Mervyn King, former governor, Bank of England. King ran the BOE for over a decade and led the U.K. central bank through the 2008-09 financial crisis.

Fed Balance Sheet Policy Task Force

Will examine the costs, benefits, and institutional implications of the Fed’s $6.7 trillion balance sheet.

• Karen Dynan, Harvard University economics professor who held top roles at the Treasury Department during the Obama administration. 
• Raghuram Rajan, University of Chicago finance professor. He is a former governor of the Reserve Bank of India and is known for his early warnings ahead of the global financial crisis.
• Jeremy Stein, Harvard University economics professor and a former Fed governor.

Fed Data Task Force

Will examine how to improve the quality and timeliness of real economic signals that inform the Fed’s policy judgments.

• Raj Chetty, Harvard University economics professor and a pioneer in the use of alternate and real-time data to analyze households and neighborhoods economic behavior. 
• Doug McMillon, former Walmart Inc. president and CEO.
• Kevin Murphy, University of Chicago economics professor.

Fed Productivity and Jobs Task Force

Will assess the economic impact of new general-purpose technologies, including artificial intelligence, to inform the Fed’s policy judgments.

• Famed tech investor Marc Andreessen, cofounder and general partner at Andreessen Horowitz. Andreessen is an outspoken supporter of the Trump 2.0 administration as well as a close friend of Warsh from their Stanford undergraduate days.

Related: Fed Warsh era kicks off with big surprise no one saw coming

• Charles I. Jones, Stanford University economics professor currently on leave from Anthropic, the AI research and product company founded by former OpenAI executives.
• Asha Sharma, executive vice president and XBOX CEO at Microsoft Corp.

Fed Inflation Frameworks Task Force

Will revisit how the Fed understands and responds to the drivers of inflation.

• Greg Mankiw, Harvard University economics professor and former chair of the Council of Economic Advisers in the George W. Bush administration.
• William White, senior fellow, C.D. Howe Institute. He is a former economic adviser to the Bank for International Settlements.
• Thomas Sargent, New York University economics professor. He shared the Nobel Prize in Economics in 2011 for his work in macroeconomics and government policy.

Fed task forces to face multiple challenges 

RSM US Chief Economist Joe Brusuelas said the list of global economic and business experts will add experience to the task forces, though he cautioned they will face challenges, too. 

“It’s a very impressive list that’s been put forward by Chair Warsh that I’m confident will inform the discussion around the substantive topics,” Brusuelas told Bloomberg.

 “However, the Fed already has an army of Ph.D.s that had investigated these areas, so I’m not exactly convinced that this is going to shed much light into how we understand productivity and AI,” Brusuelas said. 

Related: Warsh’s AI task force could reshape Fed economic models