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However, Kevin Warsh didn’t say if interest rates would change in coming months, as potential signal that rates could climb in the near future, a move that might place him in conflict with Donald Trump, who has aggressively advocated for rate cuts.
The Fed chair presented an optimistic outlook on the economy that stands in contrast to recent data. He noted that the economy “appears to have strengthened” given its ability to withstand various shocks.
“On that score, both Main Street and Wall Street have been resilient,” Warsh said at the Fed’s annual symposium in Jackson Hole, Wyoming, on Friday.
The Jackson Hole symposium has historically functioned as a venue for Fed chairs to provide clarity regarding the central bank’s overall trajectory. For instance, former Fed chair Jerome Powell signaled upcoming rate cuts during his keynote speech last year.
But Warsh on Friday insisted the days of such “forward guidance” were over, saying that the practice was adopted by the Fed during the 2008 financial crisis. “As with other legacies of crises past, I believe that the practice has overstayed its welcome,” he said.
Markets are still expected to carefully gauge Warsh’s speech for signs of the Fed’s next move. At the central bank’s last board meeting in July, three out of 12 voting members wanted to raise rates by a quarter percentage point – the first time in a decade so many board members shared dissent over a policy position. But a majority of the members voted to hold rates, which currently sit at a range of 3.5% to 3.75%, steady.
Since his appointment in May, Warsh has had to maintain a careful balance between managing an economy impacted by higher oil prices stemming from the war in Iran and avoiding the frustration of the White House. Trump has continued to insist the Fed should lower interest rates, despite economists who warn that that would further exacerbate inflation. After hitting a three-year high of 4.2% in May, US inflation cooled to 3.4% in July – still 1% higher than figures seen last year.
Warsh noted that progress on inflation over the past several years has been “modest”, and although price readings from over the summer were better than anticipated, they did not suggest that “underlying trends have meaningfully improved”.
The US bond market has been particularly sensitive to higher inflation, with the yield on 10-year notes reaching its highest level since 2007 in recent weeks. Yields briefly declined after the US treasury announced a major debt buy-back program, though the relief was short-lived. Rising rates in the US have pushed yields higher internationally – bond rates in the UK, Germany, France and Japan have all reached their highest levels in decades. Meanwhile, the US gross national debt surpassed $40tn for the first time in history last week.
In response to Warsh’s opening remarks, the two-year and 10-year US treasury yields rose slightly, while the 30-year treasury remained largely unchanged. The S&P 500 remained level while the Dow Jones ticked down slightly.
