Fed chair stresses commitment to stable prices amid inflation concerns

US Federal Reserve Chair Kevin Warsh declared the central bank is not finished battling high inflation, stating in his first major speech as chair that its primary mission is "to deliver stable prices."

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the Fed’s job to deliver stable prices

Warsh's remarks on Friday at the annual Federal Reserve symposium in Jackson Hole, Wyoming, offered no clear indication of the Fed's next steps regarding interest rates. However, markets interpreted his speech as a signal that rates might increase in the coming months. This potential move could place him at odds with President Donald Trump, who has consistently advocated for lower interest rates.

Despite recent data, Warsh presented an optimistic outlook on the economy, suggesting it "appears to have strengthened" and demonstrated resilience against various shocks. He noted that both "Main Street and Wall Street have been resilient."

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appears to have strengthened

Historically, the Jackson Hole symposium has been a platform for Fed chairs to signal the central bank's direction. However, Warsh signaled a departure from such "forward guidance," stating that the practice, adopted during the 2008 financial crisis, "has overstayed its welcome."

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On that score, both Main Street and Wall Street have been resilient

Markets remain attentive to any clues from Warsh's speeches. The Fed's July meeting saw a notable dissent, with three out of twelve voting members favoring a quarter-percentage-point rate increase, the first time in a decade such a significant minority shared this view. Nevertheless, the majority voted to maintain current rates, which stand between 3.5% and 3.75%. Since his appointment in May, Warsh has navigated the challenge of managing an economy impacted by higher oil prices due to the war in Iran, while attempting to avoid provoking the White House. Inflation, which peaked at a three-year high of 4.2% in May, cooled to 3.4% in July, though it remains 1% higher than the previous year. Warsh described progress on inflation as "modest," cautioning that recent positive readings do not necessarily indicate a fundamental improvement in underlying trends.

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As with other legacies of crises past, I believe that the practice has overstayed its welcome