ContextSpeech by Kevin Warsh at the Federal Reserve Bank of Kansas City's annual symposium in Jackson Hole, Wyoming, on his 100th day as Fed Chairman.
Why it mattersThe new Fed Chair's first Jackson Hole speech, on his 100th day: the clearest statement yet of how he wants to read inflation and use data.
- Inflation measures, including core inflation, remain elevated.
- Wage growth is a poor guide to future inflation.
- Policy decisions rely on data that may be late or inaccurate.
- Use timely, accurate and actionable data for decisions.
- Break down price components to judge underlying inflation.
- Keep demand in line with the economy's supply capacity.
Read the speech summary
1. A hinge moment and the AI questions
Speaking at Jackson Hole on his hundredth day as Fed Chairman, Kevin Warsh said the landscape has shifted from the era of secular stagnation and saving glut to a possible growth surge driven by AI, with capital pouring into AI infrastructure and token sales at the two leading labs reportedly above 100 billion dollars annualised, up over 500% in a year. He framed AI as possibly a new factor of production and listed open questions: whether productivity will rise durably and when; whether AI complements or competes with labour; whether future models will need more or less capital; who captures the surplus (labs, chipmakers, energy and cloud firms, or later businesses and consumers); and how tokens will be priced. A dedicated internal group on productivity and employment will examine this, but its findings will come later and will not shape current decisions. He believes the public and markets understand that changes in how the Fed conducts policy will serve both stable prices and a strong job market.
2. Rethinking forward guidance
He argued that forward guidance, adopted during the 2008 crisis, has outstayed its welcome: in normal times it should be limited, because oversharing and overcommitting create ambiguity and constrain the Fed's own freedom to decide. The Fed should read markets' unfiltered signals (asset prices, Treasuries, the dollar, credit costs, commodities), while market participants should form their own views rather than relying chiefly on the Fed to decide what to buy or sell next. If markets lean on the Fed and the Fed leans on market prices, a hall of mirrors results, and the heaviest cost falls on people without financial assets, who bear the effects of wrong inflation or jobs calls. Publishing a mechanical reaction function is not the answer either, because economic knowledge is not precise enough; he noted that guidance in 2021 may have delayed the response to inflation, and promised more reliable models and rules, with humility about forecasting.
3. Seven principles
Trends, not isolated data points, matter most, since the Fed must choose amid uncertainty using information that is relevant, current and actionable. Seven principles guide him: separate today's reality from stale data and focus on trends; recognise that supply can only be inferred, so judging its balance with demand is imprecise; treat the 2% PCE target as firm, noting that stable prices do not arrive on their own and inflation does not necessarily revert by itself; see the dual mandate as complementary, since high inflation harms prosperity; rely mainly on short-term interest rates and use unconventional tools sparingly outside genuine crises; remember that money, including bank-created money, still matters; and prefer a quieter, more purposeful Fed judged on results.
4. A stronger economy
He sees an economy that has strengthened. Business investment in equipment and intangibles is up around 9% over four quarters, with more than half of the capital-spending growth tied to the AI buildout; S&P 500 profits are up over 20%; credit spreads are tight and bank lending standards easy, so financial conditions are hardly restrictive, though housing and agriculture show strain. Real consumer spending rose over 2% and private domestic final purchases nearly 3%. Unemployment is 4.1% and jobless claims are near multi-decade lows, consistent with full employment. He added that expectations for capital spending and earnings growth are high, so he will watch the change in those growth rates, and that bank surveys show easier standards for commercial loans.
5. Inflation is the concern
Inflation is the worry: PCE is up 3.7% over twelve months and 4.1% over six, and 54% of PCE components rose above 3% against 32% in the two pre-pandemic decades. Wages are not a reliable guide, medium-term expectations look anchored, and he stressed that responsibility for 65 months of elevated inflation lies with the central bank. The Fed should be confident that underlying inflation is heading to target clearly and quickly; otherwise there is work to do. To gauge the underlying trend he splits the PCE index into its 199 components; summer readings were better than expected but do not prove a lasting improvement, and market measures of expectations, he warned, look durable until the moment they are not. He closed by pledging adherence to principles rather than to any particular rate move.
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