The Federal Reserve

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Powell’s tenure as Fed chair marked by fight for independence while trying to tame inflation

The U.S. economy is very different from when Jerome Powell was sworn in eight years ago: Inflation soared after the pandemic and has remained above the Fed’s 2% target for more than five years, angering voters and making rents, cars and groceries harder to afford. Along the way, Powell pushed back against an unprecedented legal investigation by the Justice Department, becoming one of the few top officials in Washington to stand up to the Trump White House. Read more.

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Fed leaves interest rate unchanged but with 3 dissents as Warsh praises ‘good family fight’

WASHINGTON (AP) — The Federal Reserve left its key interest rate unchanged Wednesday, although three officials dissented in favor of higher rates as the central bank wrestles with how to deal with persistently high inflation.

https://apnews.com/article/federal-reserve-inflation-interest-rates-iran-war-ad10c177cb8d96f9e3ed122e12352a74?

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Warsh rewires the Fed

Federal Reserve Chair Kevin Warsh is attempting a high-wire act: rethinking the central bank's approach to guiding the economy, while also using its standard toolkit to bring down stubbornly persistent inflation, Axios chief economic correspondent Neil Irwin reports.

• A market blowup late last month showed the perils of doing both at the same time.

The big picture: Warsh is ultimately trying to rewire the central bank to take greater advantage of AI to understand the economy in real time, aiming for better decision-making in the next few years.

• Some saw his July 29 news conference as evidence of a lack of commitment to quashing inflation — but to allies, it was a short-lived bump in the road toward a more credible Fed.

🔭 Zoom out: Warsh's supporters frame a couple of volatile trading days as a small price to pay for a world where markets are less dependent on central bank handholding.

• He seeks a paradigm shift in how the Fed uses AI — but those tools will take time to develop and prove workable, and meanwhile inflation has been elevated for more than five years.
• In the near term, the Warsh Fed is prepared to use its standard tool of raising short-term interest rates to combat inflation, based on tried-and-true analysis of government economic statistics.

The intrigue: Warsh is a full-throated believer that AI is a transformative technology that stands to remake the economy.

• He has told associates that before taking office, he built AI bots that ingested the collected works of economists Milton Friedman and James Tobin. He then turned to them for their insights on contemporary economic questions.
• He also sees its use as an urgent need for the Fed itself to more fully embrace AI, both to understand what's happening in the economy at any given moment and to reason toward better policy decisions.
• His aspiration is that eventually, real-time information from retailers, banks and other companies can give a more reliable guide to what's happening to inflation and growth than government surveys.

Reality check: Warsh leads a 112-year-old central bank with a $6.7 trillion balance sheet, which sits at the core of global finance.

• There's a reason it is historically cautious and slow to change, even with an approach that co-workers describe as pragmatic and collegial.

The bottom line: Expect the Warsh Fed to keep pushing boundaries of how technology can shape economic data and policymaking — but with more reassurance that for now, the basic Fed toolkit remains intact.

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'Many' Fed officials think higher rates will be needed if inflation stays high

Many Federal Reserve officials think the central bank will have to lift its key short-term interest rate in the coming months if inflation doesn't subside, minutes of the Fed's meeting last month showed. Read More.

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🏔️ Driving the day: All eyes on Warsh

Illustration: Aïda Amer/Axios. Photo: Brendan Smialowski/AFP via Getty Images Fed chair Kevin Warsh will step up to a lectern beneath elk antler chandeliers this morning to deliver the most consequential public appearance of his young chairmanship, Axios' Neil Irwin writes. Warsh's address in Jackson Hole, Wyo., comes amid a surge in longer-term interest rates worldwide and U.S. Treasury interventions in bond and currency markets — and ambiguity about the Fed's relationship with the Treasury. Go deeper ... Watch Warsh speak at 10 a.m. ET. Fed Chair Warsh signals rate hikes may be needed with US inflation stubbornly elevated JACKSON HOLE, Wyoming (AP) — Federal Reserve Chair Kevin Warsh said Friday that inflation is still too high and suggested the central bank may have to raise interest rates in the coming months to bring it down, a clearer signal than he has previously sent about his economic outlook. https://apnews.com/article/federal-reserve-warsh-interest-trump-inflation-ab896df808df3a5a3fa8b943ac5f3867?

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🏔️ Warsh's big reset

Federal Reserve chairman Kevin Warsh. Photo illustration: Sarah Grillo/Axios. Photo: Win McNamee/Getty Images

With markets wobbling and the world watching, Federal Reserve chairman Kevin Warsh went back to basics yesterday morning: He affirmed that the Fed is determined to get inflation down and may have to raise interest rates to get there, Axios' Neil Irwin writes from Jackson Hole, Wyoming. Why it matters: If the Warsh Fed follows through with rate hikes, it would increase borrowing costs for Americans and potentially put him in the crosshairs of the rate-cut-loving president who appointed him. 👂 While this summer's inflation readings "were better than expected, they do not tell me that underlying trends have meaningfully improved," Warsh said. Capital spending, corporate profits and lending activity are all buoyant — which means he "would be hard-pressed to describe broad financial conditions as restrictive."