Fed’s Warsh Says Price Stability Is Top Priority as Inflation Progress Falls Short

Federal Reserve Chair Kevin Warsh said inflation remains too high and pledged to keep monetary policy focused on restoring price stability.

At the Jackson Hole Economic Policy Symposium on August 28, Warsh said the Fed’s main focus should be prices. “If we do not have confidence that underlying inflation is moving toward target clearly and fast enough, we still have work to do,” he said.

He also underscored lingering concern about the inflation backdrop. Warsh said this summer’s personal consumption expenditures index and consumer price index came in better than expected, but not enough to conclude that price trends have improved in a meaningful way.

Warsh also said artificial intelligence could become a key variable for the U.S. economy. “AI is a new variable and potentially a new factor of production that will affect both the economy and the conduct of monetary policy,” he said.

He added that the Fed estimates more than half of this year’s increase in corporate capital spending stemmed from AI-related infrastructure build-outs. The central bank will examine AI’s impact on productivity and employment through a separate task force, he said.

Warsh also made clear in the speech that there is no forward guidance at present. Forward guidance refers to a central bank signaling the future direction of monetary policy, including interest rates, through public remarks.

“In normal times, the role of forward guidance should be limited,” Warsh said. Over-sharing future policy decisions or effectively pre-committing to them could restrict policymakers’ freedom to make the right judgment when action is required, he added.

Warsh also said he would not publish a specific policy reaction function laying out an interest-rate path based on future economic data. “Our understanding of the economy is not precise enough to generate mechanical answers from a simple formula,” he said. “The factors that matter for monetary policy also change over time.”

The full text of Warsh’s speech is available on the Fed’s official website.