Federal Reserve Chair Treads Carefully on Inflation Concerns

At the Federal Reserve's annual retreat in Jackson Hole, Wyoming, President Donald Trump's new Fed Chair, Warsh, walked a fine line on inflation in his highly anticipated speech. While measures of inflation are still elevated, Warsh stated that it is not yet clear whether the central bank must take urgent action to address rising prices.

The labor market appears stable, according to Warsh, which is one reason he views prices as more concerning. He noted that readings of inflation this summer were better than expected but do not indicate a significant improvement in underlying trends.

Warsh emphasized that the Fed's primary tool for tackling inflation is rate hikes and urged policymakers to be confident that underlying inflation is moving towards the 2% target at sufficient speed. If prices continue to rise above the target, the Fed will have work to do.

Following Warsh's speech, the odds of a Fed interest rate hike next month increased. Warsh also reiterated his preference for a 'quieter' Fed, avoiding forward guidance that lets markets and the general public know what the central bank plans to do in the near future.