Fed chair at Jackson Hole: Kevin Warsh offers no signal on rates, says inflation is 'concerning'

Federal Reserve Chair Kevin Warsh on Friday offered no signal on the near-term path for US interest rates, breaking with a long-standing tradition at the Fed's annual Jackson Hole conference.

In a speech marking his 100th day as Fed chair, Warsh said he was committed to a "discipline, not to a decision", arguing that central bankers should avoid making premature commitments on future interest rates.

He said inflation remained too high and that policymakers should rather focus on prices.

"Inflation is running above our 2% target. So the Fed's predominant focus right now should be on prices," Warsh said.

His comments come as investors are closely watching whether the Fed will cut rates at its next policy meeting, with some policymakers arguing for higher borrowing costs as inflation remains elevated.

Warsh, who took over as Fed chair three months ago, has sought to reduce the central bank's use of forward guidance, saying excessive communication about future policy can constrain policymakers' ability to respond to changing economic conditions.

"I much prefer another path," he said, adding that policymakers should not make "quasi-commitments" on interest rates through the cycle.

Inflation concerns

Warsh said the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index, was up 3.7% over the 12 months and 4.1% over the past six months. Both readings are above the Fed's 2% target.

While inflation had fallen substantially from its 2022 highs, progress over the past two years had been modest, Warsh said.

Recent readings that came in better than expected did not convince him that underlying inflation trends had meaningfully improved.

"On the price-stability side of our mandate, the numbers are more concerning," Warsh said.

Warsh said inflation expectations remained broadly stable and anchored, but warned that the Fed must ensure they do not become unmoored.

"The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank," he said.

Less forward guidance

Warsh's refusal to provide a rate outlook marks a departure from the practice of recent Fed chairs, who have often used the Jackson Hole gathering to signal the direction of monetary policy.

He argued that forward guidance, which became prominent during the global financial crisis, had outlived its usefulness in normal times.

"Overcommitting to future decisions can lead markets, businesses, and households astray," Warsh said.

He also rejected the idea that the Fed should provide a mechanical reaction function for interest rates, saying economic conditions change too quickly for a simple rule to reliably dictate policy.

Warsh said financial markets should draw their own conclusions from economic data rather than rely primarily on signals from the central bank.

"The Fed should be humble and never naive," he said.

Investors had been looking to Warsh's Jackson Hole speech for greater clarity on the rate outlook.

A CNBC survey of 31 economists, strategists and investors this week found that 80% believed he should explain his economic views in more detail.

But Warsh offered no explicit guidance on whether rates should rise, fall or remain unchanged at the Fed's next meeting.

He stressed that monetary policy would remain dependent on the evolving economic data.

"I stand here today committed to a discipline, not to a decision," Warsh said.