Warsh says US Fed has ‘work to do’ if above-target inflation lingers

Federal Reserve Chairman Kevin Warsh stated on Friday that the US central bank would need to take action if policymakers did not believe underlying inflation was moving toward its 2 percent target. Warsh acknowledged financial conditions are not currently restrictive and hinted at potential interest rate hikes to curb price pressures, marking the closest he has come to suggesting such actions.

His remarks, prepared for the Fed’s Jackson Hole economic symposium in Wyoming, primarily discussed long-term issues like artificial intelligence but also highlighted the importance of short-term interest rates in achieving the Fed’s dual mandate. Warsh emphasized that the recommendations of task forces studying longer-term challenges would not influence current policy decisions but would strengthen the Fed for future challenges.

He noted that inflation readings have been modestly improving but did not indicate a clear timeline for rate hikes, stating his comments should not be interpreted as forward guidance or a reaction function. Warsh also noted that inflation expectations are anchored but must remain closely monitored, and that credit markets are showing few signs of policy restraint given current interest rates.