Warsh tells Wall Street to stop looking to the Fed for clues on interest rates - and start watching the economic data

By Jeffry Bartash

New Federal Reserve chief repudiates 'forward guidance' and repeats vow to deliver 2% inflation

Federal Reserve Chair Kevin Warsh says investors should pay more attention to economic data to determine whether the central bank may change interest rates.

New Federal Reserve chief Kevin Warsh has a blunt message for Wall Street: Stop looking for clues about interest rates and pay closer attention to what's going on in the economy.

Warsh on Wednesday repeated his dislike of so-called forward guidance to alert investors to future Fed actions and declined to offer any hints on what the central bank will do at its next big meeting in July. He was speaking at a forum in Portugal with other top central bankers.

Forward guidance has been used by previous Fed chiefs to shape financial-market views on the economy and expectations for interest-rate changes.

Warsh has said the Fed will no longer provide forward guidance, and he reiterated that view on Wednesday.

Other central bankers had similar views. The chief of the European Central Bank, Christine Lagarde, said her biggest regret was to feel compelled to act in accordance with prior forward guidance instead of judging the economy independently in real time.

Warsh emphatically seconded that view. "President Lagarde's answer on forward guidance - I couldn't have said it better myself," he said.

Sticking to his view, Warsh declined to say whether he thought a U.S. surge in inflation tied to the conflict with Iran was temporary. Higher oil prices have pushed inflation to a three-year high.

"I am not going to make a judgment now," Warsh said. "We [the Fed] meet again in four weeks."

Warsh took over as Fed chair in May after being nominated by President Donald Trump early in the year. He had previously served at the Fed as a governor during the 2008-09 global financial crisis.

Warsh doesn't plan to be as forthcoming as his predecessors in his public pronouncements on the economy. He has said he thinks Fed officials speak too much and confuse investors.

In something of a surprise to Wall Street, though, Warsh sounded tough on inflation after his first major Fed meeting in mid-June. He promised to restore low and stable inflation and gave no hint of a possible interest-rate cut.

He repeated that pledge on Wednesday. "We are going to deliver on price stability in the U.S.," he said, pointing out that inflation has run above the Fed's 2% target for five years.

Trump had been loudly demanding lower interest rates for months before Warsh took over, but he's given the new Fed chief leeway for now.

Asked if he was willing to go against the president, Warsh said: "We are going to be an independent central bank at this moment and you are going to see no changes in that."

Warsh also spoke about the explosion of investment in artificial intelligence, saying it has "huge implications for monetary policy."

In the short run, high demand for memory and other tech products is adding to inflation. Yet economists speculate that in the long run, AI could reduce inflation by making workers and businesses more productive.

Warsh has been receptive to that view. "If the last four quarters are an indication ... there is reason to be optimistic," he said.

-Jeffry Bartash

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