THE FED CHAIRMAN, KEVIN WARSH, HAS JUST ISSUED AN IMPORTANT WARNING ABOUT INFLATION AND INTEREST RATES.
Key points from his remarks at Jackson Hole:
→ The Fed’s 2% inflation target is “firm and fixed.”
→ Inflation is still very high, with PCE at 3.7% over the past year.
→ 54% of the goods and services in the PCE basket are still recording price increases above 3%.
→ Recent improved inflation data has NOT convinced him that the underlying trend has improved.
→ The economy remains strong and the labor market is close to full employment.
→ Financial conditions are NOT restrictive despite current interest rates.
→ S&P 500 earnings have jumped more than 20% over the past year.
→ More than half of this year’s business investment growth is tied to the expansion of AI.
→ Warsh called AI a potential “turning point” for economic growth, but questioned how quickly it will truly boost productivity.
→ He warned that inflation expectations may seem stable “until they aren’t.”
→ He said the Fed itself is responsible for 65 months of elevated inflation.
→ Warsh wants less forward guidance and said markets should stop looking to the Fed for its “next move.”
→ He said interest rates should remain the Fed’s main policy tool, with unconventional measures reserved for real crises.
→ Most importantly, Warsh said the Fed must clearly and quickly see inflation moving to 2% — otherwise, “we have work to do.”
Warsh DID NOT commit to a rate hike in September, but his message was clearly hawkish: inflation remains the Fed’s biggest problem, the economy is still strong, and additional tightening is still on the table.
Key points from his remarks at Jackson Hole:
→ The Fed’s 2% inflation target is “firm and fixed.”
→ Inflation is still very high, with PCE at 3.7% over the past year.
→ 54% of the goods and services in the PCE basket are still recording price increases above 3%.
→ Recent improved inflation data has NOT convinced him that the underlying trend has improved.
→ The economy remains strong and the labor market is close to full employment.
→ Financial conditions are NOT restrictive despite current interest rates.
→ S&P 500 earnings have jumped more than 20% over the past year.
→ More than half of this year’s business investment growth is tied to the expansion of AI.
→ Warsh called AI a potential “turning point” for economic growth, but questioned how quickly it will truly boost productivity.
→ He warned that inflation expectations may seem stable “until they aren’t.”
→ He said the Fed itself is responsible for 65 months of elevated inflation.
→ Warsh wants less forward guidance and said markets should stop looking to the Fed for its “next move.”
→ He said interest rates should remain the Fed’s main policy tool, with unconventional measures reserved for real crises.
→ Most importantly, Warsh said the Fed must clearly and quickly see inflation moving to 2% — otherwise, “we have work to do.”
Warsh DID NOT commit to a rate hike in September, but his message was clearly hawkish: inflation remains the Fed’s biggest problem, the economy is still strong, and additional tightening is still on the table.
