Warsh's Fed Regime Change Sparks Inflation Fears

Kevin Warsh, the new Federal Reserve Chair, has promised to bring about a 'regime change' in monetary policy to tackle inflation. Since taking over on May 22 of this year, he has sounded more like a hawk than his predecessor Jerome Powell, focusing on low and stable inflation rather than boosting employment.

Economists and Fed watchers say that Warsh's approach is appropriate given the current state of affairs. Headline inflation was 3.5% over the past 12 months (as of June), and even when volatile food and energy items are excluded, core inflation rose 2.6%. This is well above the Fed's long-term target of 2%, while unemployment remains low at 4.2%.

The success of Warsh's plan depends on newly created task forces, which will examine areas central to monetary policy. The five task forces are focused on communications, balance sheet policy, data, productivity and jobs, and inflation frameworks. However, the results won't be released until the end of the year.