Warsh Shifts Fed's Economic Focus to Trends Over Indicators

Federal Reserve Chairman Kevin Warsh is shifting his approach to assessing the US economy. Speaking at an economic symposium in Jackson Hole, he emphasized that the central bank should receive 'unfiltered' signals from financial markets. This includes trends in asset prices, yields and trading volumes in US government bonds, the dollar exchange rate, credit availability, and commodity prices.

Warsh said the Fed must monitor 'trends, not individual indicators.' He believes the US economy is showing resilience, with business capital expenditure growing by around 9% on a four-quarter basis, its fastest pace since 2021. A significant portion of this increase may be linked to the development of artificial intelligence infrastructure.

Profits for companies in the S&P 500 index have risen by over 20% over the past year, and credit markets are not yet showing signs of a tightening of financial conditions. However, inflation remains the Fed's main concern, with the PCE index growing at 3.7% year-on-year against a target of 2%. Warsh noted that recent data has been better than expected but does not indicate a significant change in the underlying inflation trend.