Federal Reserve ally criticizes officials’ views on rate restrictiveness

Someone in the Federal Reserve’s orbit just said the quiet part out loud. A close ally of Fed Chair Kevin Warsh publicly dismissed the notion that current interest rates are restrictive, calling the claim “just ridiculous.” The remark lands at a moment when the Fed is already under pressure to explain why inflation remains stubbornly above its 2% target after more than five years of misses. The numbers behind the frustration The backdrop makes the criticism hard to dismiss. Personal consumption expenditures inflation, the Fed’s preferred measure, sits at 3.7% year-over-year. On a six-month annualized basis, it’s even worse at 4.1%. The Fed’s target, as Warsh has repeatedly emphasized, is 2%. That gap has persisted for a remarkably long time. Warsh noted in his August 28 Jackson Hole speech that the Fed has missed its inflation target for 65 consecutive months. Meanwhile, the federal funds rate target range stands at 3.50% to 3.75%. The labor market isn’t cooperating with the restrictive narrative either. Employment conditions have remained relatively stable, which is not what you’d typically expect if monetary policy were genuinely putting the brakes on economic activity. Warsh’s b...