Economy News

Warsh at Jackson Hole: no ‘forward guidance’, but the Fed has ‘work to do’ on inflation

US Federal Reserve chair Kevin Warsh used his first major speech in the job, at the Fed's Jackson Hole symposium on Friday 28 August, to say the central bank is not done fighting inflation, The Guardian reports. He did not say where rates would go next, and said the Fed's practice of “forward guidance” had “overstayed its welcome”. But he said financial conditions did not appear restrictive enough, which Al Jazeera calls the closest he has come to acknowledging hikes may be needed.

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.” — Kevin Warsh, via Al Jazeera

Warsh called progress on inflation over the past two years “modest”. The Fed's preferred PCE price index was 3.7% in July; consumer price inflation cooled to 3.4% from a three-year high of 4.2% in May. CME FedWatch put the chance of a quarter-point hike in mid-September at 57.4%. Two-year and 10-year Treasury yields edged up; the S&P 500 was flat.

How each outlet framed it

• The Guardian — a balancing act: Warsh painted a rosy view of a “resilient” economy that contrasts with recent data, while a hike would put him at odds with Donald Trump, who wants cuts. Three of 12 voters wanted a hike in July.
• Al Jazeera — the hawkish signal: Capital Economics said the message was “far clearer” than his last press conference and left the door open to a hike before its December forecast.

What we don't know yet: the timing. Warsh stressed his remarks should not be taken as guidance. Much of his speech was about AI's effect on the economy, with recommendations from five Fed task forces still to come.