Observers Want Fed Chair to Clarify His Views on Inflation, Interest Rates

New Federal Reserve Chair Kevin Warsh takes the podium Friday in Jackson Hole, Wyoming, to address the Fed’s annual economic conference at what has been called a high-stakes opportunity to address the economy.

But will that happen?

Warsh has brought sharp change in how the central bank communicates by saying much less than his predecessors about the economy and inflation. The AP said that so far, many economists and Wall Street investors haven’t been thrilled with that approach.

The AP reported that many economists and Wall Street analysts are hoping for a clear signal on how Warsh thinks the Fed should handle the persistent elevated inflation that has caused pervasive gloom among many consumers.

At his last press conference, some observers thought he sowed confusion by ducking repeated questions on whether the Fed would hike its benchmark interest rate if inflation stays high.

In previous statements, Warsh has said he doesn’t want to provide what analysts call “forward guidance” about whether the Fed will hike or cut rates or stay on hold at upcoming meetings.

Warsh has argued that it limits the Fed’s flexibility by committing it to a specific policy, and he also thinks financial markets have become too dependent on such guidance.

Not Tipping His Hand

Some economists argue, however, that Warsh could say more about his views on Fed policy without tipping his hand about future moves.

“What he needs to do is to clarify the conceptual framework he’ll bring to directing monetary policy,” David Wilcox, a senior fellow at the Peterson Institute for International Economics, said. “He’s refused to provide even that amount of illumination.”

Whether Warsh will deliver that clarification Friday is an open question, the AP noted. Last month, Warsh said he wanted his speech to focus on the “big questions” such as AI and productivity, demographic changes, and the global economy’s response to shocks from the Iran war.

“I’d like to hear him be a bit more communicative,” said Kathy Bostjancic, Chief Economist at Nationwide. “We’re not talking forward guidance. Just some understanding of how he views the inflation dynamics right now.”

How Warsh and the Fed will handle elevated prices is not just an issue for Wall Street. Even as inflation has cooled after spiking in May and June from higher gas prices, it remains above the central bank’s 2% target. Surveys show most Americans still see the affordability of necessities such as gas, groceries, and housing as a top economic issue heading into the midterm elections.

Interest rates rose when Warsh spoke publicly at a press conference on July 29, pushing up mortgage borrowing costs after the Fed decided to keep its benchmark rate unchanged.

Raising Rates

“Warsh effectively lost markets when he was speaking,” said Gennadiy Goldberg, Head of U.S. rates strategy at TD Securities. “He kept talking more about bringing inflation down,” yet when reporters asked what he would do to achieve that, “he didn’t really have an answer.”

Warsh told reporters that “any central banker … is more inclined” to raise rates “when he or she sees underlying inflation moving higher,” which some economists told the AP was in the ballpark of the broader outlook they were looking for.

But the AP reported, Warsh hasn’t said whether he in fact thinks “underlying inflation” is worsening, or how exactly he is measuring that.

When asked what gauge he would use to determine if inflation is at the 2% target, Warsh cited the Fed’s current preferred measure — the personal consumption expenditures price index. He then suggested that could change next year, after the task forces he has named to look at things like data sources and inflation make recommendations.

When queried about whether he would support higher rates to combat stubborn inflation, Warsh said they “could well be part of that solution,” but then added, “I wouldn’t say it’s in isolation.”

The AP said that questions hovering over Warsh also have been intensified by President Donald Trump’s continued calls for lower interest rates. While the president has continued to defend Warsh, whom he appointed and who took office May 22, Trump has criticized other Fed officials for supporting higher rates.

Trump Renews Attempt to Remove Lisa Cook

Trump also renewed his attempt to remove Fed governor Lisa Cook, who was appointed by former President Joe Biden. The AP noted that replacing Cook would enable Trump to appoint a majority of the seven-member board.

Trump attempted to fire Cook last year but was temporarily blocked by the Supreme Court. Cook has filed legal papers contesting a possible firing.

“Politics are adding to the Fed’s credibility problems,” Diane Swonk, chief economist at KPMG, wrote in a recent commentary. “That is why his speech … later this month matters so much. It is an opportunity for Warsh to demonstrate his and the Fed’s independence from political interference.”