Keven Warsh says Fed’s “forward guidance” is not working and focuses on inflation

• Warsh says the Fed’s policy of “forward guidance” is not working
• He said that the Fed’s “forward guidance” and the concrete steps it has taken have not been enough to prevent inflation
• He said that the Fed’s attempts to reduce inflation by tightening policy have been ineffective because the bank’s stability is not ensured

In the middle of a new round of Federal Reserve system meetings, Keven Warsh announced that the Fed is failing to achieve its goals. “The Fed is failing to achieve its goals by keeping inflation under control,” he said. “Even if the Fed claims it is doing everything it can, the results show that it is not.” Warsh added that he believes the Fed’s policy is not working and that the bank’s stability is not guaranteed.

In an interview on a panel, Warsh said that if the Fed is to raise interest rates by 2%, it will not be able to “reduce” inflation, and that the bank will not be able to ensure stability.

In his words, Warsh said that the Fed’s traditional approach is to manage inflation by using interest rates. “But the Fed is not changing the direction of its policy,” he said.

According to Warsh, the Fed’s current approach to raising interest rates is like trying to stop a fire with water. “The Fed is trying to control inflation with words, but it needs to act,” he said. “It needs to change its policy to ensure stability.”

As in the U.S., inflation is driven by the rate at which money is spent and by the expectations of businesses and consumers. “If the Fed does not take action, inflation will continue to rise,” he said. “The Fed may have to raise rates further to bring inflation under control.”

To sum up the economic context, inflation in the U.S. has been at its highest level in decades, while the Fed’s policy has not been able to prevent the rise. Warsh urged the Fed to consider tightening policy further and to ensure that inflation does not exceed 2%.

In particular, Warsh believes that the Fed should stop using forward guidance and instead focus on concrete actions to reduce inflation.

Tags: Economy/USA