Federal Reserve Chair Kevin Warsh said Friday there may be “work to do” on inflation, though he again danced around his outlook on interest rates during a closely-watched speech at the central bank’s annual Jackson Hole, Wyo., retreat.
Warsh said the “good news” is that inflation estimates in the medium-term “look stable” – but he added that this summer’s inflation readings “do not tell me that underlying trends have meaningfully improved.”
“Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh said. “Otherwise, we have work to do. That’s our job … our mandate … and our charge to keep.”
In the past, previous Fed chairs – including Warsh’s immediate predecessor, Jerome Powell – have used their appearance in the Teton mountains of Wyoming to deliver major policy announcements.
Warsh, however, has notably taken a different stance as the new leader of the central bank, repeatedly arguing against the need for “forward guidance” – which has investors hunting for any hints in his speech as to whether policymakers are prepared to hike interest rates.
Last month, Warsh said he would use the Jackson Hole speech to “frame the big questions” facing the central bank. There’s no shortage of those, as policymakers face stubborn inflation, rising bond yields and growing dissent within the central bank.
In July, inflation hit 3.4% – down from levels above 4% in May but still stubbornly above the Fed’s 2% goal.
Higher oil prices caused by the war in Iran have been slow to cool off, while gas has remained above $4 a gallon, forcing consumers to cut back elsewhere.
At the Fed’s July meeting, Warsh repeatedly emphasized that the committee’s priority is lowering prices, which implies a bias toward raising interest rates.
But he refused to answer how he planned to ease inflation or when he would be ready to hike rates, leaving investors unsure whether the Fed will take action at its meeting in September.
Ahead of Warsh’s speech, traders saw 35% odds that the Fed issues a quarter-point rate hike at its September 16 meeting, according to CME FedWatch.
Cleveland Fed President Beth Hammack – one of three Fed officials who wanted a rate hike last month – has said the central bank should raise rates soon to tackle inflation.
“I believe it’s time to act. I think we’ve seen inflation above target for too long,” Hammock said Thursday at the conference.
Meanwhile, in the weeks since the Fed’s last meeting, Treasury yields have surged – another sign that investors are doubting the central bank’s commitment to act on inflation.
Last week, the Treasury Department announced plans to “at least double” debt buybacks to roughly $4 billion. Bond yields briefly eased, but rebounded the following day.
This is a developing story. Please check back for updates.