Sunita SomvanshiFederal Reserve Chair Kevin Warsh said controlling inflation is the central bank’s primary focus on Friday, signaling that price pressures remain the Fed’s top concern even as employment holds steady and consumer spending stays strong.
Speaking at Jackson Lake Lodge in the Wyoming resort town of Jackson Hole, Warsh laid out an economic picture with competing signals. The labor market has not weakened. Consumers continue to spend. Business investment remains active. Yet prices are climbing faster than the Federal Reserve intends.
Consumer prices rose 3.4% over the 12 months ending in July, according to the Consumer Price Index from the Bureau of Labor Statistics. The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures index, posted a 3.7% gain over the same stretch, according to the Bureau of Economic Analysis. Both readings exceed the Fed’s 2% inflation target.
“The predominant focus right now should be on prices,” Warsh told attendees at the annual Jackson Hole Economic Symposium.
The Fed chair also defended a new approach to how the central bank communicates its plans. He argued the Federal Reserve works better as a “quieter Fed” — one that gives less detailed guidance about future interest rate decisions.
Detailed forecasts about upcoming rate moves can create complications, Warsh said. They can “tie the central bank’s hands and distort market signals.” A central bank that communicates with more restraint allows for better policymaking, he said.
“A quieter Fed, more purposeful in its communications, is better able to meet its objectives,” Warsh said.
Traders shifted their expectations after the remarks. Before Warsh spoke, they had put the chance of a September rate increase at roughly one in three. After he finished, the probability moved above 50-50.
Warsh also addressed artificial intelligence as a near-term driver of inflation. He said AI data-center construction and higher demand for memory chips are pushing up prices now. The Federal Reserve has formed a task force to study AI’s longer-term economic effects.
Warsh stressed that the task force is not shaping current policy. “It has no bearing on decisions we make in the current policy conjuncture,” he said.
Former Chicago Federal Reserve President Charles Evans, speaking to CNBC, said Warsh “gave the speech he wanted to give.”
The Fed’s next policy meeting takes place in mid-September, when the committee will decide whether to adjust interest rates. Inflation readings have stayed above target in other economies as well, including recent Canada inflation data and Australian price trends.
