Warsh's Hawkish Pivot Raises Concerns About Fed Policy Error

Fed Chairman Kevin Warsh's recent hawkish pivot has raised concerns about his true intentions. Is he genuinely worried about inflation, or is he trying to build credibility by sounding vigilant? The latter could lead to a policy error if rates are raised.

Warsh recently mentioned specific inflation data, including 54% of the PCE's 199 components rising above 3% over the past year. This choice of data seems unusual, given his previous dismissal of 'rough swag' and 'scientific wild guess' labels for other metrics.

As a new Fed chair, Warsh is inheriting persistent above-target headline inflation and concerning bond market price activity. He must sound vigilant to maintain credibility, but doing so risks tightening rates when employment and inflation data don't necessarily justify higher rates.