Federal Reserve Chairman Kevin M. Warsh sought to reassure markets and the public that the central bank remains committed to bringing increased inflation back to its 2% target.
Speaking at the Fed’s annual conference in Jackson Hole, Wyoming, Warsh stated that “while this summer’s [inflation] readings were better than expected, they do not tell me that underlying trends have meaningfully improved.”
His comments followed a disturbing period for the US government bond market.
Fed keeps focus on inflation
Warsh further underscored the main objective of the Fed after price increases stayed above the central bank’s 2% goal for much of the past five years.
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job . . . our mandate . . . and our charge to keep,” Warsh added.
He addressed the central bank’s responsibility for persistent inflation, stating the Fed must ensure that underlying price pressures are moving toward its target at a sufficient pace.
“If” inflation does not return to the Fed’s objective quickly enough, “we have work to do,” Warsh stated in prepared remarks.
The chairman stopped short of indicating whether the current economic environment needs increased interest rates, leaving future policy decisions open.
Interest rates remain major tool
Additionally, Warsh highlighted that these updates to the Fed’s benchmark overnight interest rate remain its main instrument for controlling inflation while supporting a healthy labor market.
The federal funds rate currently stands at 3.5% to 3.75%, as policymakers balance persistent price pressures against economic growth and employment.
Warsh’s remarks are expected to be diligently monitored by investors as markets assess the direction of U.S. monetary policy.
Warsh’s first major address to global economic policymakers as Fed chairman also reinforced the central bank’s commitment to price stability.
Currently, the Fed is seemingly focused on ensuring inflation moves convincingly toward its 2% target ahead of bringing significant changes in policy.
