Warsh Calls Inflation ‘Concerning’ in Speech Ahead of Policy Meeting

Wall Street traders think there is a greater chance that the Federal Reserve will hike interest rates next month after the central bank’s chairman, Kevin Warsh, described the inflation rate as “concerning.”Mr. Warsh, on Friday morning, sounded hawkish during a speech at an economic policy symposium at Jackson Hole, Wyoming. He said the Fed’s predominant focus right now should be on prices, with inflation having run higher than the central bank’s 2 percent target rate for 65 months.Using the bank’s preferred method of calculating inflation, the rate stands at 3.7 percent over the past 12 months and at 4.1 percent over the past six months. Mr. Warsh said a recent rise in overall commodity prices also bears watching. “What we need to judge is whether trends indicate upside inflation risks,” Mr. Warsh said.CME Group’s FedWatch tool, which measures the likelihood that the Fed will change the target rate, increased the likelihood of a rate increase at the September policy meeting to 55.7 percent after the speech, up from 35.4 percent a day earlier.“I think September is most likely going to be a hike at this point,” Neuberger Global’s chief investment officer, Ashok Bhatia, said in a CNBC appearance.President Trump has long pushed for lower rates and consistently criticized the former chairman, Jerome Powell, for not lowering rates. Mr. Warsh has stressed the independence of the central bank and said he would not be pressured to make any decision on interest rates.Mr. Warsh said he was “impressed” by the overall performance of the economy, “which appears to have strengthened.” He noted that corporate profits had grown more than 20 percent over the past year and that profit margins are quite elevated, relative to history. Mr. Warsh also noted that market volatility is low.“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Mr. Warsh said.Mr. Warsh also commented on artificial intelligence as a growing force in the economy. “We recognize that AI is a new variable — potentially a new factor of production — that will have consequences for both the economy and the conduct of monetary policy,” Mr. Warsh said. He added that the Fed will need to monitor whether and when the application of AI will cause a significant, sustained rise in productivity.Another concern for Mr. Warsh is whether use of the rapidly growing technology will be complementary or competitive to labor.Mr. Warsh reiterated his decision to stop giving so-called forward guidance, or early pronouncements, regarding future policy decisions, saying a quieter Fed is better able to meet its objectives. At the start of his speech, Mr. Warsh gave a quick overview of what he was going to cover and joked, “just don’t call it forward guidance.”

Warsh Calls Inflation ‘Concerning’ in Speech Ahead of Policy Meeting

Warsh Calls Inflation ‘Concerning’ in Speech Ahead of Policy Meeting

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