Fed has 'work to do' if inflation doesn't fade, Chair Warsh says

Federal Reserve Chairman Kevin Warsh delivered a closely watched speech in Jackson Hole, Wyoming, reaffirming the central bank's commitment to combating high consumer prices. While acknowledging recent data suggests inflation has cooled, Warsh stressed that "underlying trends have meaningfully improved."

Warsh signaled the Fed's readiness to take further action if inflation does not move toward the central bank's 2% annual target. "We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed," he stated. "Otherwise, we have work to do." This suggests a potential for interest rate hikes if inflationary pressures persist.

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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.

Despite inflation concerns, Warsh expressed optimism about the broader U.S. economy, highlighting the nation's low unemployment rate of 4.1% in July. However, investors and analysts are seeking clearer guidance on the Fed's future policy path.

Warsh, who succeeded Jerome Powell, has maintained a more reserved approach to forward guidance than his predecessors. He argued that this practice, adopted during the Global Financial Crisis, limits the Fed's flexibility. Instead, he prefers to explain how the Fed reacts to changing economic conditions, a stance that leaves markets seeking more concrete signals on interest rate trajectories.

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Forward guidance as a regular practice was adopted by my colleagues and me during the Global Financial Crisis. It was essential at the time, and we introduced it with much fanfare. But, as with other legacies of crises past, I believe that the practice has overstayed its welcome.