Fed official Warsh spoke about the priorities of U.S. monetary policy and the economic outlook at the Jackson Hole Economic Policy Symposium, hosted by the Kansas City Fed in Wyoming.
Warsh said inflation continued to remain above the 2% target and that the Fed’s primary focus should be prices and price stability. Although the summer data on the personal consumption expenditures price index and the Consumer Price Index came in better than expected, he said he was not convinced that underlying trends had improved meaningfully.
Warsh said the Fed’s 2% price stability target, measured by the personal consumption expenditures price index, was firm and fixed. He said price stability does not arise on its own and that ensuring it is the Fed’s responsibility.
Warsh said high inflation had persisted for 65 months and that responsibility for it rested directly with the Fed. Stressing the need to be certain that core inflation was moving toward the target at a clear and sufficient pace, Warsh said more work remained if that was not the case.
Economic outlook and financial conditions
Warsh said real consumer spending had remained healthy despite the shocks that had occurred, adding that employment was in good condition and labor markets remained stable. He said he believed labor markets were broadly consistent with full employment, while indicators related to the price stability target were more concerning.
Reminding that the Fed is also responsible for maximum employment, Warsh said a quieter Fed with more measured communication could achieve its goals more effectively.
Warsh said expectations for growth in capital spending and corporate profits were high, adding that their effects on asset prices, business confidence, consumer income and spending should be assessed.
Warsh said signs of strain had emerged in some sectors, such as housing and agriculture, but that it was difficult to characterize financial conditions as restrictive when considering the overall picture.
Warsh said market prices reflected confidence that the Fed would deliver price stability and that the market was right on that point.
Artificial intelligence and forward guidance
Warsh said advances in artificial intelligence had occurred much faster than expected and that the technology had become a new variable in how the economy and monetary policy are managed. He announced that they would assess the potential effects of artificial intelligence with the support of the Productivity and Employment Working Group, adding that developments in the technology would be monitored closely.
Recalling the goal of changing the form and function of forward guidance, Warsh said he believed the practice had run its course. He said forward guidance should be limited and narrow in scope during normal periods, warning that otherwise it could create uncertainty while seeking to provide clarity.
Warsh said he was speaking not in support of a specific decision but on the basis of a discipline, and emphasized that they were taking on their responsibilities with seriousness, humility and determination.
