Warsh Faces Balancing Act at Jackson Hole
Mohamed El-Erian, chief economic adviser at Allianz, has highlighted the challenges facing Kevin Warsh in his first Jackson Hole speech as Federal Reserve chair. Warsh will have to balance competing expectations from two different camps, with one group wanting him to outline his near-term 'reaction function' and provide forward guidance on monetary policy.
The other camp wants Warsh to focus on longer-term economic and structural forces, returning to the gathering's 'original secular spirit'. El-Erian described this balancing act as 'difficult to strike' and 'almost certain to leave some unsatisfied.'
The recent inflation data has increased the importance of any comments Warsh makes about the Fed's policy reaction function. The PCE price index rose 0.2% in July, with core PCE also increasing by 0.2%. On a year-over-year basis, headline PCE rose 3.7%, while core PCE increased 3.3%.
El-Erian's preference is tilted towards the 'longer-term secular side', particularly given the current division among FOMC colleagues.