Fed chief has a warning for Americans hoping inflation is finally easing

WASHINGTON, DC: Americans hoping the worst of inflation is behind them received a fresh warning from Federal Reserve Chairman Kevin Warsh, who said underlying price pressures have not “meaningfully improved” despite more encouraging summer data.

Speaking at the Federal Reserve’s annual Jackson Hole Economic Symposium on Friday, August 28, Warsh made inflation the centerpiece of his first keynote address as chairman.

His message was: the central bank needs clearer evidence that inflation is moving toward its 2% target before declaring progress.

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh said. “Otherwise, we have work to do.”

Fed chief sees inflation concerns

The latest figures have offered a mixed picture.

July's annual Personal Consumption Expenditures Price Index, the Fed's preferred inflation measure, remained at 3.7%, while core PCE, which excludes food and energy, held at 3.3%.

Both measures remain above the central bank's 2% goal. 

Early estimates also suggest August's figures may show little improvement, as policymakers watch whether higher energy costs begin affecting other parts of the economy.

Warsh said headline readings alone did not convince him that the deeper inflation trend had changed. His remarks came as the Fed continues weighing its next move on interest rates.

Rates could stay higher longer

Financial markets reacted quickly to the speech. 

Short- and medium-term Treasury yields rose, with the two-year yield climbing seven basis points to 4.3%.

Futures markets were split over whether the Federal Open Market Committee would raise rates at its next meeting.

Investors are now watching upcoming economic data, including the August jobs report, for further clues about the economy and the Fed's thinking.

Warsh struck a more positive note about broader economic conditions, citing consumer and business spending, solid financial conditions and the growing economic impact of artificial intelligence. 

He also acknowledged signs of a slowing labor market while pointing to a shrinking labor supply.

For American households, the Fed's inflation fight can directly affect the cost of borrowing.

Interest-rate decisions can influence mortgage payments, credit card costs and other loans, while inflation itself continues to shape the price of everyday goods and services.