Kevin Warsh’s Fed Could Ignite the AI Buildout. Here’s How to Position

My dear readers, please prepare yourselves – because the impending changing of the guard at the Federal Reserve could redefine where capital flows for the next decade.

Soon, the notion of a central bank solely concerned with inflation and unemployment may give way to one increasingly entangled with national competitiveness and technological power.

We are entering an era where the Fed’s mandate stretches beyond price stability into something more audacious and existential: winning the AI Arms Race and forging America into a “Technological Republic.”

For decades, Washington has been a slow, reactive beast, forever lagging behind Silicon Valley’s breakneck pace. AI is changing that dynamic – because it is no longer just a technology. It is a national imperative. 

And Kevin Warsh – former Fed governor and potential successor to Jerome Powell as chair – is poised to be one of its chief architects.

This represents a regime change in the deepest sense. It’s about aligning the commanding heights of monetary policy with the grand strategic vision of a nation betting its future on computational supremacy. 

To understand why Warsh matters so much, you have to understand what the Fed has quietly been doing for the better part of the last decade – and why that era is running out of road.

Why Fiscal Dominance Is Breaking Down

I’ll be blunt: the era of “fiscal dominance” – where monetary policy served fiscal needs by suppressing borrowing costs and absorbing government debt – is likely on its last legs. The math is becoming unworkable. 

The United States now carries roughly $35 trillion in national debt, with interest payments approaching $1 trillion a year and rising fast. That trajectory is unsustainable – and it’s exactly why President Trump is looking to Kevin Warsh for help.

Warsh is a structural hawk with a vision. His critique of the Fed’s bloated balance sheet isn’t just about fiscal righteousness; it’s about capital allocation. He views the Fed’s easy money policies as an inefficient, even destructive, siphoning of capital into unproductive ventures, essentially subsidizing “zombie companies” – firms kept alive by cheap credit despite weak productivity or profitability – while steering cash away from true innovation.

His proposed solution: Tough love for Uncle Sam. 

By shrinking the Fed’s balance sheet and refusing to function as the Treasury’s ATM, Warsh would raise the marginal cost of debt and force fiscal trade-offs that easy money previously masked. In practice, that pressure pushes Washington to reallocate spending toward genuine productivity gains – read: AI.

This is where the “Technological Republic” comes into full view. 

The White House, understanding the urgency, isn’t waiting for the Fed to do all the heavy lifting via rate cuts. We’ve seen the beginnings of this with initiatives like Project Stargate, the government-backed venture capital fund funneling billions into dual-use AI companies that promise both commercial profit and strategic advantage. Similarly, the Genesis Mission, a bipartisan initiative, seeks to de-risk investments in critical AI infrastructure – from advanced fabs to high-capacity data centers – through grants, tax incentives, and even direct state-backed equity in promising ventures.

We can call this 21st-century industrial policy AI Accelerationism. In practice, it means the state actively de-risking early investment so private capital can scale AI faster than markets would on their own. 

And under Warsh, the Fed is positioned to become its primary enabler.

How a Warsh-Led Fed Could Accelerate AI Investment

So, what tangible actions could a Warsh-led Fed take that would send a direct current of capital into the AI supply chain?

What Kevin Warsh Has Said About AI and Productivity

Warsh has loudly proclaimed that AI is a “significant disinflationary force.” This is a radical reframing of monetary policy. 

Historically, strong growth prompted the Fed to raise rates to cool inflation. Warsh’s argument is different: if growth is driven by productivity – doing more with less – then inflation is not necessarily the byproduct, even in a hot economy.

If that logic shows up in the data, it opens the door to more flexible rate policy. Lower rates in a productivity-driven expansion dramatically reduce the cost of capital for the multi-billion-dollar investments required to build fabs, data centers, and the energy systems that power them. 

In other words, cheaper money, aimed at the economy’s most powerful growth engine.

Why Less Financial Engineering Means More Productive Growth

Warsh is no fan of the post-2008 banking regulations that, in his view, stifle lending to innovative, growth-oriented businesses. He’s argued that current rules favor large, incumbent banks and hinder credit flow to the agile firms that actually drive technological progress.

So, we may expect a push to streamline some regulations and perhaps even recalibrate capital requirements for regional banks willing to lend to the crucial mid-cap tech and energy companies building out the AI backbone. This unlocks a new tier of financing for those critical, yet often overlooked, players in the AI supply chain.

Forward Guidance for an Innovation-Driven Economy

The Fed communicates its intentions through “forward guidance” – explicit signals about how policy is likely to evolve. Under Warsh, we think this guidance would pivot sharply from being solely “data-dependent” (i.e., reacting to last month’s inflation figures) to becoming “future-focused” and “growth-centric.”

The Fed would signal a long-term commitment to fostering an environment where innovation thrives, providing the market with the confidence to make five- to 10-year capital commitments in AI. This stability could be like rocket fuel for venture capitalists and private equity funds looking to deploy massive sums into long-cycle AI projects.

All of this sounds abstract – until you ask the only question that actually matters: where does the money go next?