Kevin Warsh’s Take:
https://www.federalreserve.gov/newsevents/speech/warsh20260828a.htm
To try to gauge underlying inflation, I find it instructive to disaggregate the 199 individual components of the PCE price measure. Over the past 12 months, 54 percent of goods and services in the PCE basket showed price increases above 3 percent. This is well below the post-pandemic highs of about 77 percent, but it remains well above the level of 32 percent in the two decades that preceded the pandemic.
Looking over just the past six months, the conclusion is similar: Of goods and services in the PCE basket, 49 percent showed annualized price increases above 3 percent. Again, this is well below the post-pandemic highs but still quite elevated.
The recent rise in overall commodity prices also bears watching. What we need to judge is whether trends indicate upside inflation risks.
It matters, too, whether the inflation readings of the past five-plus years have seeped into expectations. The good news is that measures of inflation expectations in the medium term, by and large, look stable. And inflation compensation measures from the swaps market send a strong and similar message.
Especially in light of recent developments, it is a credit to the Fed as an institution—and consistent with the best of the Fed's traditions—that market prices show confidence that we will deliver price stability. And I can assure you . . . they're right.
The thing about market measures of inflation expectations in economic history is that they tend to look strong and durable until they don't. Those expectations are not pushed around easily, and right now they are well anchored. But they must be closely minded. It's the Fed's job to make sure that inflation expectations do not get unanchored.
There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs.
Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job . . . our mandate . . . and our charge to keep.