Kevin Warsh's first Jackson Hole speech as Federal Reserve chair delivered a more assertive message than many expected: inflation is still too high and the central bank does not rule out new rate hikes in the coming months. No explicit promise and no calendar, but also less ambiguity than before. Warsh, in office since May 22 after replacing Jerome Powell, used the Kansas City Fed symposium, this year themed "Financial Innovation: Implications for Payments and Policy", to mark his 100th day as chairman and set out his approach to monetary policy.
A speech without forward guidance
The common thread is his rejection of forward guidance, the practice of signalling upcoming moves that the Fed often used after the 2008 crisis. Warsh reiterated that short-term rates are the "predominant tool" to achieve the dual mandate and closed with a line bound to be remembered: "I stand here today committed to a discipline, not to a decision." The chair wants a "quieter", more purposeful Fed in its communications, avoiding a regime where markets look to the central bank for their next trade.
Inflation, the "work to do"
On prices the tone is firmly hawkish. The Fed's preferred gauge, the PCE index, stood at 3.7 percent year over year and 4.1 percent over six months in July. Warsh acknowledged the latest data show some cooling, but "they do not tell me that underlying trends have meaningfully improved." His standard is blunt: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed." Otherwise, "we have work to do." He argued inflation will not return to the 2 percent target on its own and noted that 54 percent of the goods and services tracked by the government saw price increases of 3 percent or more, against 32 percent in the two decades before the pandemic.
