Fed's Warsh warns inflation 'too high' despite resilient economy

Federal Reserve Chairman Kevin Warsh warned on Friday that inflation remains "too high" for comfort, citing persistent price pressures that continue to overshoot the central bank's 2% target despite stable labor markets and solid economic output.

Inflation gauge overshoots target

Speaking at the Jackson Hole Economic Symposium, Warsh stated that the Fed's preferred inflation measure stood at 3.7% over the past 12 months, with the six-month change reaching 4.1% — significantly exceeding the central bank's firm 2% objective. "While this summer's personal consumption expenditures and consumer prices index readings were better than expected, they do not tell me that underlying trends have meaningfully improved," he said, adding that policymakers must be confident underlying inflation is clearly moving toward their objective at sufficient speed. He warned that if this condition is not met, the central bank still has work to do to achieve price stability.

Full employment persists

On the employment side, Warsh described labor markets as consistent with full employment, citing a historically low jobless rate of 4.1%. The chairman emphasized that this resilience provides little comfort regarding price pressures, as wage growth and consumer demand continue to complicate the path toward disinflation.

AI transformation

Warsh also addressed the transformative potential of artificial intelligence for the broader economy, stating that progress in this general-purpose technology had outpaced expert predictions from just two years ago. The central bank is watching these developments attentively, he said, as artificial intelligence could emerge as a new factor of production with significant implications for long-term growth.