Fed's Regime Change Promises Meet Skepticism Amid Persistent Inflation

New Federal Reserve Chair Kevin Warsh has been in office for over 100 days and has promised a 'regime change' to defeat inflation. While economic data suggests that inflation is not close to the Fed's target of 2%, the personal consumption expenditures (PCE) price index rose 3.7% in the year through July, casting doubt on this idea.

Warsh has launched five policy task forces and shortened the post-meeting policy statement to limit hints about how the Fed will act. The Federal Open Market Committee (FOMC) has met twice under Warsh's tenure, with both times holding steady interest rates despite consistently elevated inflation readings.

The Consumer Price Index (CPI) fell slightly in July, but core PCE was still higher than desired at 3.3%. Additionally, lenders are demanding higher yields to compensate for their inflation expectations, with the 30-year mortgage rate increasing from 6.51% to 6.66%

Warsh agrees that underlying inflation has not meaningfully improved and warned that the Fed would 'have work to do' without clearer evidence of inflation returning to its target.