- Kevin Warsh addressed inflation concerns, noting no clear improvement despite recent data
- The Fed's preferred inflation measures remain above the 2% target, signaling ongoing price pressures
- Warsh hinted at potential interest rate hikes if inflation does not move toward the target swiftly
Federal Reserve Chair Kevin Warsh delivered his much anticipated keynote speech at the Jackson Hole Economic Policy Symposium today as investors and economists looked at hints on the central bank's stance to inflation, rate hike bet and broader economic policy framework.
Warsh addresed several issues in his speech including elevated inflation while hinting that interest rate hike if there no progress on easing price pressures.
Here are three takeaways from Fed Chair's speech -
Concerns over inflation
Acknowledging inflation being above Fed's target, Warsh said, “while this summer's readings were better than expected, they do not tell me that underlying trends have meaningfully improved.”
The Fed's preferred measure of inflation, the 12-month change in the PCE price index, is at 3.7%, while the six-month change is 4.1%. The consumer price index (CPI) is also elevated, as are the core measures of both PCE and CPI inflation. "None of these measures are perfect, but they all tell a similar story: Inflation is running above our 2 percent target. So the Fed's predominant focus right now should be on prices," Warsh said.
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job . . . our mandate . . . and our charge to keep,” he added.
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Hints on rate hike
Warsh emphasised that central bank's leaders have "work to do" if the inflation is not expected to hit its target of 2% "clearly and at sufficient speed," hinting that interest rate hikes are ahead in the absence of improvement in prices.
"Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed's job to deliver stable prices," he said.
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Need for a "quieter" Fed
Warsh advocated that the central bank should speak less, but make its communication more clear, which will ultimately help to achieve its goal.
He said, "A quieter Fed, more purposeful in its communications, is better able to meet its objectives. And we can be held accountable for delivering on our remit—the only true test of our credibility."
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