US Central Bank Chair says inflation isn't beaten yet

**Gideon Long** (0:01)
Inflation has to come down, so says the head of the Federal Reserve, Kevin Warsh.

**Kevin Warsh** (0:06)
We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.

**Gideon Long** (0:15)
It's World Business Report from the BBC World Service. I'm Gideon Long. Yes, Kevin Warsh has made his first ever speech at Jackson Hole as the head of the US Central Bank. We'll be picking through it. Plus, the threat of hybrid attacks on infrastructure in Europe. And what to do when AI comes after your voice?
Every year in August, just for a few days, the majestic mountains of Jackson Hole in the US state of Wyoming take center stage for the US and indeed the global economy. Why? Because there, an elite group of central bankers and policymakers gather to discuss economics and monetary policy. And each year, the head of the Federal Reserve, the US Central Bank, makes the keynote speech. For the past eight years, that man has been Jerome Powell. But this year, today, the new head of the Fed, Kevin Warsh, made his Jackson Hole debut. And he gave a pretty upbeat assessment of the US economy.

**Kevin Warsh** (1:12)
I'm impressed by the overall performance of the economy, which appears to have strengthened. One indicator of strength is how well an economy holds up under stress, how well it holds up under shocks.
On that score, both Main Street and Wall Street have been remarkably resilient.

**Gideon Long** (1:28)
So how has his speech been received? Loretta Mester is a former president of the Federal Reserve Bank of Cleveland, and she gave me her assessment.

**Loretta Mester** (1:36)
I thought it was a very strong speech. I mean, it covered a lot of ground. He talked about his views on AI and how transformative it will be on the economy.
He offered some principles about what's guiding, should be guiding monetary policy. And then significantly, he gave his views on the current state of the US economy and implications for monetary policy. And that was something that a lot of people had been critical of, that he hadn't done that in the two press conferences at the last FOMC meeting. So I think he addressed some of that criticism. He gave a pretty clear view of how he sees the US economy at this juncture.

**Gideon Long** (2:17)
And of course, the Federal Reserve has this dual mandate to look at inflation but also to look at unemployment. And Kevin Warsh addressed both of those issues. Let's have a listen to what he had to say.

**Kevin Warsh** (2:27)
So on the employment side of the Fed's dual mandate, our country is doing well. Labour markets are quite stable. The jobless rate at 4.1% remains low by historical standards and hasn't changed much in a couple of years. Unemployment claims are near their lowest level in decades. But on the price stability side of our mandate, the numbers are more concerning. The Fed's preferred measure of inflation stands at 3.7%, with a six-month change a little above 4
None of these measures are perfect, but they all tell a similar story. Inflation is running above our 2% target.
We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.
Otherwise, we have work to do.

**Gideon Long** (3:16)
So, Loretta, he addressed both sides of that dual mandate, but the emphasis was clearly here on combating inflation rather than dealing with unemployment, wasn't it?

**Loretta Mester** (3:24)
Well, and I think rightfully so, because as he stated, and certainly my view is that the labour market is in balance, right? We've basically achieved that part of the mandate.
And what hasn't been achieved is price stability and that 2% inflation target. So I think he's correct in pointing out that the real issue facing the US economy is not in the labour market. It's really on the inflation side.

**Gideon Long** (3:50)
So clearly an emphasis on bringing inflation down towards the 2% target. What does that tell us? Do you think about the next Fed interest rates meeting, which is due in September? What do you expect from that meeting now?

**Loretta Mester** (4:01)
Well, I do think that he set up the conversation in a way that allows him if he wants to move interest rates up in September, he certainly can do it. He sort of laid out a good case for raising, I think, by saying, look, they have to focus on underlying inflation.
And in his view currently, that underlying inflation rate is not moving down, and it's certainly not moving down at sufficient speed, which is the other thing that he's worried about. So, given the labor market is in good shape, as he said, growth is in very good shape, as he said, and inflation is the problem, he's certainly set it up so that interest rates can move up. And I think that's sort of consistent with my view of the economy. I think it would be appropriate for them to move up their Fed funds rate, their policy rate in September. Of course, he didn't give us forward guidance. He didn't say that's what they're going to do, but he certainly laid out the case. And I think the onus now are on the people who don't want to do that to lay out a cogent argument for not doing that.