Fed chief signals readiness to act on inflation if needed

Federal Reserve chief Kevin Warsh has signaled the U.S. central bank's resolve to combat inflation, stating that the Fed has "work to do" if price increases do not show a clear and sufficient downward trend toward the 2% target.

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Here is my starting point: we must be sure that the underlying inflation is moving toward our goal, clearly and with sufficient speed. Otherwise, we have work to do. That is our task.

Speaking at the annual economic summit in Jackson Hole, Warsh's remarks were interpreted by market analysts as a confirmation of expectations that the Fed is prepared to raise interest rates. This stance aims to reassure investors about the central bank's commitment to its price stability mandate.

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In my view, today's speech was a victory for the Federal Reserve as an institution, but the higher short rates - and the increased probability of rate hikes right up to the midterm elections - will probably not be received with open arms by the White House.

Frederik Romdahl Poulsen, chief strategist at Velliv, viewed Warsh's speech as a victory for the Federal Reserve institutionally. However, he noted that the prospect of higher short-term interest rates, particularly close to the midterm elections, might not be welcomed by the White House. Poulsen agreed with Warsh's emphasis on the Fed's responsibility to solve the inflation problem.

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In my view, Warsh chose correctly by emphasizing that it is the Fed's task to solve the inflation problem.

Chief economist Søren Kristensen from AL Sydbank highlighted the anticipation surrounding Warsh's speech, as Jackson Hole events often provide significant signals for U.S. monetary policy. Kristensen pointed out that Warsh's previous lack of communication had created confusion among investors regarding the Fed's strategy, particularly concerning its willingness to curb inflation and its independence from the White House. Warsh's direct statements on Friday aimed to dispel these uncertainties, reinforcing the message that investors should anticipate interest rate hikes.

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But also because Warsh's total lack of communication has made investors extremely confused about how the Fed manages monetary policy. Both in terms of whether the Fed will act to curb inflation, but also how independent they actually are from the White House.