Federal Reserve has ‘work to do’ if price increases don’t slow for Americans, Warsh says

The head of the US central bank has said policymakers “will have work to do” if they were not confident that cost-of-living pressures were easing for Americans.

Federal Reserve Chairman Kevin Warsh said that while inflation readings looked better than expected over the summer, they did not show that the current outlook had “significantly improved.”

The new Federal Reserve chief emphasized that his comments should not be treated as a guide for future interest rate decisions, but are a sign that rates could rise if policymakers believe inflation is too high.

The latest figures show prices rose 3.4% in the year to July, above the Federal Reserve’s 2% target. Another measure of inflation closely watched by the Federal Reserve is 3.7%.

Warsh made the comments in his first speech at the annual Jackson Hole Economic Policy Symposium in Wyoming, where central bankers, government officials and academics from around the world gather to talk about interest rates, inflation and other economic issues.

Warsh said that since prices were rising more than 2% annually, “the Fed’s predominant focus right now should be on prices.”

“This is my standard: We must be sure that core inflation is moving towards our target, clearly and quickly enough. Otherwise, we have work to do.”

The central bank chief has remained tight-lipped about the possible path of interest rates, but investors will have closely watched his speech for any signs of the Fed’s approach under his leadership.

The central bank’s next interest rate decision will be made on September 15 and 16.

The reaction to any decision by US President Donald Trump will be closely watched as the midterm elections loom and voters are concerned about affordability.

Trump, who appointed Warsh in May, repeatedly criticized and pressured his predecessor Jerome Powell to cut interest rates. The president has previously said that rate hikes “just keep the country depressed.”

Warsh asked in his speech not to label his comment as “future guidance” and said he believed the practice of sending signals to markets about future interest rate decisions, adopted in the wake of the 2008 financial crisis, had “overstayed its welcome.”

“Oversharing in political deliberations and overcommitting to future decisions can lead markets, businesses and households astray,” he said, adding that it also inhibits the Fed’s “freedom to make the right decisions when decision time comes.”

Interest rates were left unchanged between 3.5% and 3.75% in July for the fifth time in a row amid concerns about inflation due to the ongoing conflict between the United States and Iran, which has caused a rise in global oil prices.

Following Warsh’s remarks, the rates market showed growing expectations for an interest rate hike in September, according to CME data.

Analysts at Capital Economics said Warsh’s speech conveyed a “much clearer and more aggressive message” and left “the door open to an increase” sooner than expected.

“The hikes are not guaranteed, but Warsh now at least suggests he is okay with them if economic growth remains strong and monthly core PCE [Personal Consumption Expenditures] price growth remains too firm,” they said.