On the price-stability side of our mandate, the numbers are more concerning, he said on Friday addressing the “Financial Innovation: Implications for Payments and Policy,” an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming.
The Fed’s preferred measure of inflation, the 12-month change in the PCE price index, stands at 3.7 percent, while the six-month change is 4.1 percent. The comparable measures from the consumer price index (CPI) are also elevated, as are the core measures of both PCE and CPI inflation, Warsh said.
“While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved,” he said.
The recent rise in overall commodity prices also bears watching. What we need to judge is whether trends indicate upside inflation risks, Warsh said.
“It’s the Fed’s job to make sure that inflation expectations do not get unanchored,” he said.
There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs, Warsh added.
“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 said.
Warsh also reiterated his discomfort with giving forward guidance on rate actions.
On his remarks made at the symposium, he said “You can call it an outline . . . you can call it a trail map . . . just don’t call it forward guidance”.
“Forward guidance as a regular practice was adopted by my colleagues and me during the Global Financial Crisis. It was essential at the time, and we introduced it with much fanfare. But, as with other legacies of crises past, I believe that the practice has overstayed its welcome,” Warsh said.
“In normal times, the role of forward guidance should be limited and circumscribed. Otherwise it risks creating ambiguity in the name of clarity. Oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray,” he said.
And I believe when policymakers make quasi-commitments on interest rates through the cycle, we inhibit our own freedom to make the right calls when it’s time to decide, Warsh said.
Read full text of his speech here: https://www.federalreserve.gov/newsevents/speech/warsh20260828a.htm
