Warsh Sets High Bar for Inflation Targeting at Jackson Hole

Kevin Warsh, Federal Reserve Chair since May 22nd, addressed the Jackson Hole Economic Policy Symposium in Wyoming. The event's official theme is 'Financial Innovation: Implications for Payments and Policy,' but the real focus was on inflation targeting at 2%. In a keynote speech, Warsh outlined seven principles to guide the Fed's decision-making process.

Warsh emphasized the importance of knowing the difference between yesterday's news and current events. He stated that policy exists to keep aggregate demand in line with supply, and that 2% on the PCE index is 'a firm fixed target.' The Chair also emphasized the need for price stability, which is not self-executing, and that there should be no excuses.

Warsh presented a positive economic picture, citing strengthening output, increased business investment in equipment and intangibles (about 9% over four quarters), and rising S&P profits. However, he noted that prices are still high, with twelve-month PCE inflation at 3.7% and six-month pace above 4%. The Fed must be confident that underlying inflation is moving towards 2% 'clearly and at sufficient speed' before taking action.