Fed Chair Kevin Warsh delivered the keynote address to the annual Jackson Hole forum on Friday. Past Fed chairs have used the occasion to deliver fresh policy messages or/or announce the results of reviews of Fed procedures related to monetary policy.
By-and-large, Warsh did neither.
Warsh once again explained his dislike of forward guidance and encouraged markets to make their own assessments of economic and financial conditions rather than relying on the Fed’s reaction function. Warsh said, “In normal times, the role of forward guidance should be limited and circumscribed” and later continued, “market participants themselves should be tracking real information across the economy”. It was unlikely that he would have moderated the views he so recently expressed, but this does reinforce the notion that the summary of economic projections (SEP) is probably nearing its end.
Warsh also reiterated the Fed’s commitment to returning inflation to the 2 percent objective as measured by the PCE deflator which “is a firm, fixed target.”
If there was any signal in Warsh’s comments, it was that in assessing the current US economy, “I would be hard pressed to describe broad financial conditions as restrictive.” If the labor market remains in balance and “consistent with full employment,” “the numbers are more concerning” in regard to price stability.
Inflation is “still quite elevated” compared to normal conditions even with the improvement from post-pandemic highs. Even though inflation expectations for the medium term are generally stable, that could change if the Fed does not deliver price stability, Warsh indicated.
The implication is that the bias for interest rate policy is for higher rates if the remaining data reports before the September 15-16 FOMC show conditions about the same or worse.
Also on Friday, the BLS announced the March 2026 preliminary benchmark revision for nonfarm payrolls. Although the total revision of down 79,000 is much smaller than seen in the past few years, the composition of it is less reassuring. The preliminary revision for total private payrolls is down 178,000 which government payrolls are up 99,000. The revisions by industry point to uneven conditions in the private sector. The increase for government is puzzling given massive layoffs a year earlier, but it may be in part the aggressive hiring for agencies like ICE. In any case, the size of the revision will not be final until the BLS releases the January 2027 report in February 2027.
