Fed Chair Warsh signals hawkish shift, refocuses on inflation

Kansas City: U.S. Federal Reserve Chairman Kevin Warsh signaled a hawkish shift in monetary policy, placing inflation squarely at the forefront of the central bank's concerns. Speaking at the Federal Reserve's annual Jackson Hole symposium, Warsh stated that the Fed must be confident that underlying price pressures are moving toward its 2% target at a sufficient pace, or further policy action will be necessary.

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We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.

"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," Warsh declared. He highlighted that inflation remains above the Fed's target and that better-than-expected readings during the summer had not convinced him that underlying inflation trends had meaningfully improved. Warsh reaffirmed the 2% inflation objective, measured by the Personal Consumption Expenditures price index, as a "firm fixed target," emphasizing the central bank's responsibility to deliver stable prices.

While stopping short of signaling the Fed's next interest-rate decision, Warsh stated, "I stand here today committed to a discipline, not a decision." He offered a strong assessment of the broader U.S. economy, noting apparent strengthening with rising business capital expenditure and healthy consumer spending. Labor markets are broadly consistent with full employment, evidenced by the unemployment rate at 4.1%. Financial conditions were also described as not restrictive, with strong credit markets and relatively easy lending conditions.

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I stand here today committed to a discipline, not a decision.

Warsh also criticized the practice of routine forward guidance, suggesting it had "outstayed its welcome" in normal times. He warned that repeated commitments about future interest rates could constrain policymakers when economic conditions change. At the Fed's July meeting, a "good majority" of policymakers preferred to wait for additional information before deciding on interest-rate policy, while remaining ready to act as circumstances required.

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outstayed its welcome