Warsh's Conventional Jackson Hole Speech Leaves Markets Unchanged

Kevin Warsh, the new Federal Reserve Chairman, has been suggesting that he wants to run the Fed differently. However, economist Paul Krugman came away from his first Jackson Hole speech feeling that it was 'utterly conventional'. This means that Warsh's message on interest rates didn't stray far from the traditional approach.

Warsh argued that the Fed's practice of providing forward guidance has 'outstayed its welcome', but he reaffirmed the 2% inflation target and stuck with the Personal Consumption Expenditures Index as the preferred inflation gauge. This caught Krugman's attention because Warsh had previously floated the possibility of looking at inflation differently.

Warsh made it clear that inflation remains the bigger problem facing policymakers right now, citing a 3.7% year-over-year PCE inflation rate in July. He emphasized that the Fed needs to be confident that inflation is moving toward 2% 'clearly and at sufficient speed' before making any changes to interest rates.