Federal Reserve Chairman Kevin Warsh emphasized his desire for a quieter central bank in his first address at the Fed’s Jackson Hole, Wyoming, summer retreat.
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If markets or policymakers were looking for insights into how the new Fed might approach interest rates in the future, they will have to wait.
“The Fed should be humble and never naïve,” Warsh said. “The Fed plays an essential role in the economy and the markets. And our tools are powerful. We determine the path of short-term interest rates. And market participants will always try to anticipate what we will do next. But we should not indulge a regime in which market participants are looking primarily to the Fed for their next trade.”
The comments were a reference to the “forward guidance” the Fed has used in the past to guide markets through informal signaling of changes in policy. Warsh has said explicitly he wants to end that.
“In my term as chairman, my colleagues and I will endeavor to construct more reliable models and more robust rules to guide policy decisions,” Warsh said. “We’ll do this knowing that accuracy in economic forecasting is still just an aspiration. With so much changing so fast in geopolitics, global supply chains and technology, it’s wise to be modest about what we can and cannot know.”
Warsh did use the occasion to repeat the Fed’s commitment to lowering inflation, without providing specifics.
“The Fed’s price-stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target. Let’s be equally clear about another aspect of the objective: Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed’s job to deliver stable prices.”
However, some market analysts found the statement wanting.
“Kevin Warsh continues to pay lip service to price stability without much clarity on when hikes will come,” said David Russell, head of global market strategy at TradeStation. “His acknowledgment that current inflation is too high slightly boosts odds of a September hike.”
In the Fed’s absence, the Treasury has moved. Secretary Scott Bessent has been a lead player in the Trump administration, even making pronouncements on the ongoing conflict with Iran, oil prices and inflation. He has promised to intervene in the market for government debt, buying back longer term bonds in exchange for shorter duration Treasuries. That did have the effect of reducing interest rates, but the move proved short-lived.
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Still, Warsh’s address was eagerly awaited as it was his first Jackson Hole keynote speech. Previous gatherings have been used by Fed leaders as opportunities to telegraph a change in monetary policy.
Meanwhile, individual Fed officials have been speaking out on the need to raise interest rates to fight inflation, currently well above the central bank’s 2% target.
In an interview Thursday from Jackson Hole, Cleveland Federal Reserve Bank President Beth Hammack said: “I don’t want to prejudge anything. But I believe now is the time to act.”
“I believe that we’ve been in an inflationary situation for more than five years,” Hammock added. “It’s been running well above our target. I don’t see any restriction in policy when I look at financial conditions and when I talk to market participants.”
Market interest rates on government bonds have increased significantly in recent weeks over fears about the continuing conflict between the U.S. and Iran, rising energy prices and the long-term growth of the national debt, now at $40 trillion and counting. To some degree, that has done the work of the Fed, but at the same time it keeps prices high for consumers wanting to take out mortgages or borrow for car loans.
While the economy is growing, it is at a modest pace of 1.5% annually and the labor market is soft with low job growth. Then there is the recent breakdown of trade talks between the U.S. and Canada, along with the threat of higher tariffs on imports from the northern neighbor. Canada has vowed to meet them tit for tat.
“The tariffs are going to cause more inflationary pressures as well as the ongoing war in Iran,” says Erasmus Kersting, professor of economics at Villanova University.
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