Warsh strikes cautious tone on US interest rates

**Bisi Adebayo** (0:01)
A big day for the man in charge of the world's most powerful central bank. It's World Business Express from the BBC World Service. I am Bisi Adibayo. As Kevin Warsh takes centre stage at Jackson Hole, what does his keynote speech tell us about where US interest rates are heading? And British actors fight back against AI clones of their voices.
So in the last hour, the chair of the America's Central Bank, the Federal Reserve has been delivering his first keynote speech at Jackson Hole in Wyoming. Every August, the Kansas City Fed hosts what some call devils for central bankers. Kevin Warsh is facing pressure from President Trump to cut interest rates and bring down borrowing costs. Here's some of what he's had to say.

**Kevin Warsh** (0:50)
In my term as chairman, my colleagues and I will endeavour to construct more reliable models, more robust rules, and we'll do this knowing that accuracy in forecasting is still just an aspiration. With so much changing so fast in our geopolitics, global supply chains, technology, it's wise to be modest about what we can and cannot know as we sit here today.

**Bisi Adebayo** (1:18)
Let's bring in Nancy Marshall-Ganza, Washington correspondent at Marketplace. Nancy, you've heard a bit of Kevin Warsh there. What has stood out to you?

**Nancy Marshall-Gensler** (1:28)
Well, his emphasis clearly was on inflation. Of course, the Fed has a dual mandate, two jobs, inflation and maximum employment. He said, look, things are fine. Unemployment is historically low. We're good there, but we really have to focus on inflation. One thing that stood out to me was he made it clear that the Fed's favorite yardstick for inflation will still be the Personal Consumption Expenditure Price Index, the PCE. And then he went on to say that that's been over the Fed's 2% target for about five years now.

**Bisi Adebayo** (2:03)
But there's also pressure to bring borrowing costs down. And after what we've heard today, which way do you think interest rates are heading?

**Nancy Marshall-Gensler** (2:12)
Well, Warsh did say that the Fed has more work to do on inflation. Now, some may take that as a signal that an interest rate hike is coming, but I would say not at the next Fed meeting in September. And that's because there's just so much uncertainty right now. Oil prices, the Strait of Hormuz, the war in the Middle East, tariffs, so many things that are so uncertain. The Fed's best move would just be to stay pat in September and just not do anything until it's a little more certain about the future.

**Bisi Adebayo** (2:48)
Let me ask you this, Nancy. What type of inflation are we actually seeing?

**Nancy Marshall-Gensler** (2:54)
Well, that's the other thing, is this is inflation caused by things like supply chain issues. And the Fed's tools work best when demand is the problem, and demand is causing inflation. But right now, the inflation we're seeing is from things like the Strait of Hormuz being closed. It's not like the Fed can go out and pump more oil. Now, if there is a problem with demand, prices are rising because consumers are buying too much. The Fed can raise interest rates and tamp down that demand and cool off the economy. But that is not the case here.

**Bisi Adebayo** (3:27)
So what should the Fed be prioritizing at this point?

**Nancy Marshall-Gensler** (3:31)
Clearly inflation, and Warsh made that very clear. And the other thing that was interesting is he gave us a window into the types of data that he is keeping an eye on. He talked about the PCE and the various components, the various prices that the PCE tracks. And he said, you know, over the past year, 54% of those prices in that PCE basket have increased over 3%. And remember, the Fed's target for inflation is 2%.

**Bisi Adebayo** (4:04)
That would be a good place to leave it. And Nancy Marshall Gensler, Washington correspondent at Marketplace.
Now, Kevin Warsh's speech has also been closely watched by financial markets around the world. Susanna Streeter is Chief Investment Strategist of Wealth Club. Susanna, what have markets made of what they've heard so far?

**Susannah Streeter** (4:22)
Well, I think his words seem to have reassured markets to some extent. Certainly, an interest rate hike doesn't appear to be bolted on for September. It's still considered to be around 50-50. So what you're seeing is the S&P 500 and the tech-heavy NASDAQ rising in early trade. Warsh's message was, let's wait and see, really, for more data to come through. But given he still appears poised to raise rates if inflation stayed worryingly high over the longer term, it does seem to have reassured bond investors. That's why you're seeing longer term treasury yields drop a little. There are still worries about the huge government debt pile, but there's a bit more reassurance that inflation won't run out of control under Kevin Warsh.