Federal Reserve Chairman Warsh urges bond investors to focus on economic changes

Kevin Warsh has a message for bond traders: stop listening to him so closely and start paying attention to the economy. The Federal Reserve Chairman, roughly 100 days into his tenure, used his first Jackson Hole Economic Policy Symposium speech on August 28 to lay out a vision for what he calls a “quieter Fed.” The core argument is deceptively simple. Markets should move on inflation prints, jobs data, and GDP growth, not on parsed syllables from central bankers. The quiet Fed thesis Warsh’s argument is that excessive Fed communication has created a feedback loop where bond prices reflect expectations about what the Fed will say next, rather than what the economy is actually doing. Warsh didn’t mince words about the inflation picture. The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, sat at 3.7% year-over-year at the time of his remarks. The six-month annualized rate was even worse at 4.1%, suggesting price pressures have been accelerating rather than cooling. Perhaps most telling: 54% of the PCE basket recorded price increases greater than 3% annually. Inflation isn’t just a headline number problem. It’s broad-based, touching more than half of...