Fed Chair Warsh Signals Hawkish Stance, Puts Inflation Fight at Forefront
Fed Chair Kevin Warsh says inflation remains the central focus, warning that further policy action may be needed if price pressures don't convincingly move toward the 2% target.
US Federal Reserve Chairman Kevin Warsh has placed the battle against inflation squarely at the center of the central bank's agenda, delivering a hawkish message at the annual Jackson Hole symposium on Friday. Warsh asserted that the Fed must see clear and sufficient progress in underlying price pressures toward its two percent target, or it may need to take further policy action.
"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," Warsh stated in his keynote address. He emphasized that the Fed's "predominant focus right now should be on prices," noting that while recent summer readings were better than expected, they have not convinced him that the underlying inflation trend has meaningfully improved.
Reaffirming the Fed's commitment to its inflation goal, Warsh described the two percent target, measured by the Personal Consumption Expenditures price index, as a "firm fixed target." He stressed that delivering stable prices is the central bank's primary responsibility, while stopping short of signaling the next interest-rate decision, saying, "I stand here today committed to a discipline, not a decision."
Despite the inflationary concerns, Warsh's assessment of the broader US economy remained positive. He noted that the economy appears to have strengthened, with rapid growth in business capital expenditure and healthy consumer spending. Labor markets are broadly consistent with full employment, with the unemployment rate at 4.1 percent.
Warsh also observed that financial conditions could hardly be described as restrictive, citing strong credit markets and relatively easy lending conditions. In a notable shift, he pushed back against the Fed's routine practice of forward guidance, arguing that it has "outstayed its welcome" in normal times and warning that repeated commitments about future interest rates could constrain policymakers when economic conditions change.
Recalling the Fed's July meeting, Warsh mentioned that a "good majority" of policymakers preferred to wait for additional information before deciding on any change in interest-rate policy, while remaining ready to act as circumstances require.