US Federal Reserve (Fed) President Kevin Warsh described inflation, which has been above the bank's target for a long time, as an "unfair burden" and "tax" and stated that a regime change in the monetary policy approach is needed to eliminate it.
Warsh attended the session held at the Financial Services Committee of the US House of Representatives on the first day of his presentation on the semi-annual Monetary Policy Report to the US Congress. During the session, which lasted approximately 3 hours, Warsh answered questions from committee members.
On the question of how to ensure price stability in the short term with existing tools, Warsh said that they want economic growth to be more broad-based and the rise in inflation to be more limited.
Warsh pointed out that there are many factors that develop beyond the Fed's control, such as conflicts abroad, and noted that they do not have direct control over these.
Stating that inflation is a choice, Warsh stated that they focused on three things to restore price stability.
Warsh, firstly, emphasized their determination to ensure price stability, and secondly, noted that they took responsibility.
Fed President Warsh said, "Now is not the time to throw the blame on others. The Fed can and will ensure price stability." he said.
Stating that the Fed also has tools that will help it achieve its goal, Warsh pointed to the bank's interest rates and balance sheet policy tools.
Inflation framework in 2020 "a mistake", says Warsh
Asked how he evaluated the Fed's decision to abandon the policy framework that it adopted in 2020 and tolerated higher inflation, Warsh reminded that he was quite critical about this issue when the new framework was announced in that period, and stated that the approach in question led to higher inflation than expected.
Warsh said of the framework in question, "This was a mistake. The framework in question did not achieve its goals, and I am glad that my predecessors addressed this before I took office." he said.
Stating that all central bankers can make mistakes, Warsh noted that mistakes should be openly accepted.
"If that mistake had been acknowledged sooner, we wouldn't have had to bear the burden of this unnecessary tax for the last five years," Warsh said. he said.
For this reason, Warsh pointed out that they acted with a reform focus and stated that an activity group was established aiming to review the inflation frameworks used by the Fed.
He called inflation an "unfair burden" and a "tax"
Warsh pointed out that they have initiated a radical change in thinking and a series of reforms to be implemented in at least five dimensions of monetary policy in the last six weeks after taking office, and stated that they have made great progress in this process and that it is important to evaluate this opportunity rationally.
Emphasizing that inflation remains above the target for a long time, Warsh said:
"Inflation that has been above target for 63 months has created an unfair burden and tax on the American people and businesses. We plan to eliminate this tax. This means we need a regime change in policy and rethinking practices, some of which have worked and some of which have not. That's what we aim to do, and we're just getting started."
The findings of the working groups will be shared periodically.
Answering questions about the five activity groups created to review the operation of monetary policy, Warsh stated that these groups are currently in the "exploratory phase", tasked with going back to basic principles and determining what the bank is doing and what can be improved.
Warsh noted that the opinions of the activity groups will be shared primarily with decision makers and nothing will be kept secret.
Fed President Warsh stated that he will share the results and thoughts on this issue periodically until the end of the year and said, "I hope we will reach some concrete results." he said.
Emphasizing that inflation above the Fed's target shows that it is urgent to think about reforms, including the bank's communication, Warsh said, "I do not expect any of the changes in communication to hide information. The purpose of the change in communication is to do only one thing right, and that is to implement monetary policy correctly." he said.
Warsh, who was also asked about his evaluation of the inflation data announced today in the USA, said that the data in question was positive compared to expectations.
Stating that he would not say "mission accomplished", Warsh stated that there was a lot of work to be done and that he would feel safer if there were better data to support the decision-making process.
Reminding that one of the activity groups will focus on data, Warsh said, "The reason why I established an activity group related to data is that I do not want to over-interpret the data or evaluate it by selecting the parts I want. There may be people who look at this morning's data and say, 'The mission is completed, everything is fine.' This is not my opinion." he said.
According to the data announced today in the USA, the Consumer Price Index (CPI) decreased by 0.4 percent on a monthly basis in June, while it increased by 3.5 percent on an annual basis, below expectations.