Fed Chairman Kevin Warsh says prices remain too high, hinting at possible rate hikes

Federal Reserve Chairman Kevin Warsh said the central bank has “work to do” in taming inflation and cannot offer any excuses in pursuing that goal, a signal that higher interest rates could be necessary.

Mr. Warsh, speaking at a major economic gathering in Wyoming, said the Fed’s 2% inflation target is a “firm, fixed target” that will not change. 

The central bank’s recent reading of inflation, the Personal Consumption Expenditures Price Index, increased 3.7% on an annual basis in July.

“It’s the Fed’s job to deliver stable prices, no excuses,” Mr. Warsh said in his first address to the Jackson Hole Economic Policy Symposium, an annual gathering of global leaders, economists and central bankers. "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."

He said the employment situation is good, overall, but rising prices worry him. 

“Inflation is running above our 2% target, so the Fed’s predominant focus right now should be on prices,” he said.

Mr. Warsh became Fed chairman in May, replacing Jerome Powell, who faced constant hectoring from Mr. Trump to lower interest rates.

Mr. Trump said he wanted Mr. Warsh to act independently as the top central banker. Yet Mr. Trump made it clear that he thinks lower rates would supercharge growth during his presidency.

At the same time, several members of the Fed’s rate-setting committee want to raise rates to tame inflation, placing the new chairman in a bind.

Mr. Warsh’s comments suggest rate hikes remain on the table, though he was careful not to lock himself in to concrete actions.

The chairman said “forward guidance,” or the Fed's practice of signaling what it plans to do with rates and monetary policy over the long term, is useful in crises, but not right now. 

“As with other legacies of crises past, I believe the practice has outstayed its welcome,” Mr. Warsh said.

He said the guidance leads to false expectations and hurts central bankers’ ability to remain flexible.

Mr. Warsh attended the Jackson Hole gathering in the past as a member of the Fed, but this was his first time as chairman.

He said the world is at another “hinge point in history,” notably through the development of artificial intelligence.

“We recognize AI is a new variable,” Mr. Warsh said, and that it raises key questions, including whether it will complement labor or replace it.

He joked about recreation choices around Jackson Hole, warning there are two types of hikes in the nearby wilderness — “death marches” versus leisurely strolls — so attendees should choose wisely.

Mr. Trump has been supportive of Mr. Warsh and blames holdover appointees from past presidents for higher rates.

“We have a wonderful chairman. I think he’s doing a great job,” the president said at a recent cryptocurrency summit. “The problem is he has a board, and it’s a political board. People put in by Obama and me, and there are quite a few members still left, so they vote to raise rates.”