Federal Reserve Chairman Kevin Warsh used his first Jackson Hole speech to tell investors that inflation is still running too high, and that prices — not jobs — are now what the central bank is watching.
The 2% objective, he said, is “a firm, fixed target.”
Price stability is not self-executing, and inflation does not automatically drift back to normal on its own.
The Fed’s preferred gauge — the personal consumption expenditures price index, which tracks what Americans actually pay for goods and services — is running at 3.7% over the past twelve months, and 4.1% over the past six.
Inflation Is Not Cooling
The summer’s better-than-expected readings, Warsh said, do not show that “underlying trends have meaningfully improved.”
“The recent rise in overall commodity prices also bears watching. What we need to judge is whether trends indicate upside inflation risks,” he added.
For borrowing costs, the message was blunt. Warsh said he would struggle to call broad financial conditions restrictive. Credit spreads sit near historic lows and bank lending standards are easy.
Unemployment sits at 4.1%. Warsh called labor markets consistent with full employment, which removes the usual argument for cutting rates.
“The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank.”
Inflation expectations, he added, look durable right up until they don’t.
“The Fed’s predominant focus right now should be on prices,” Warsh said.
This is a developing story…
