Analysis: Fed Chairman Warsh faces an inflation credibility test after Congress hearings
"My view is these are all imperfect measures of the state of underlying inflation." The Iran war has raised gas prices in the U.S., but Warsh said that...
Key points
- "My view is these are all imperfect measures of the state of underlying inflation." The Iran war has raised gas prices in the U.S., but Warsh said that isn't necessarily inflation, or at least not the kind the Fed can deal with.
- She warned of "significant price increases for chips, other high-tech equipment, software, and utilities." That is changing her overall view of inflation, she said, "with inflation risks now outweighing employment risks." The debate over AI spending "is one of the good family fights" at the Fed, Warsh said.
- The Fed under former Chair Jerome Powell considered information about the money supply to be essentially irrelevant to inflation, but Warsh disagrees.
- He doesn't want to return to the era when the Fed targeted the size of the money supply in making policy decisions, but he believes certain monetary measures can give useful information about inflation.
What happened
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"My view is these are all imperfect measures of the state of underlying inflation." The Iran war has raised gas prices in the U.S., but Warsh said that isn't necessarily inflation, or at least not the kind the Fed can deal with. She warned of "significant price increases for chips, other high-tech equipment, software, and utilities." That is changing her overall view of inflation, she said, "with inflation risks now outweighing employment risks." The debate over AI spending "is one of the good family fights" at the Fed, Warsh said. The Fed under former Chair Jerome Powell considered information about the money supply to be essentially irrelevant to inflation, but Warsh disagrees. He doesn't want to return to the era when the Fed targeted the size of the money supply in making policy decisions, but he believes certain monetary measures can give useful information about inflation. "I have this old-fashioned view that monetary policy has something to do with money," Warsh said. A worse result would be for Warsh to win the argument and keep rates flat or down, only to see inflation reaccelerate.