Fed Chairman Warsh Reiterates Discomfort With Forward Guidance But Highlights Inflation Concerns

(RTTNews) - Federal Reserve Chairman Kevin Warsh delivered his highly anticipated debut speech as the head of the central bank at the Jackson Hole economic symposium on Friday.

As widely expected, Warsh began his remarks by highlighting his aversion to providing "forward guidance," noting his "long-time discomfort with early pronouncements of future policy decisions."

Warsh argued that oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray.

"To get policy right, we also need to get the relationship right between financial markets and the central bank," Warsh said. "The Fed needs clear market signals, as unfiltered as possible.

"We determine the path of short-term interest rates. And market participants will always try to anticipate what we will do next," he added. "But we should not indulge a regime in which market participants are looking primarily to the Fed for their next trade."

However, Warsh's comments about the current state of the economy may have provided some insight into his views about the outlook for interest rates.

The Fed chief noted people may well be concerned about possible future labor disruptions but said he believes labor markets are currently consistent with full employment.

Instead, Warsh said the numbers are more concerning with regard to the price-stability side of the Fed's dual mandate, with the annual rate of growth by the central bank's preferred measure of inflation standing at 3.7 percent

"None of these measures are perfect, but they all tell a similar story: Inflation is running above our 2 percent target," Warsh said. "So the Fed's predominant focus right now should be on prices."

Warsh also said the recent rise in commodity prices bears watching and noted the Fed needs to judge whether the trends indicate upside inflation risks.

He added, "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."