Warsh stays on message as inflation remains the Fed's top priority

• Warsh reaffirmed that returning inflation to 2% remains the Fed's top priority.
• He expressed optimism on US growth, labour markets and the long-term benefits of AI.
• He also reiterated the Fed's independence and offered no new policy signals.

At the ECB Forum in Sintra, Fed Chair Kevin Warsh largely followed the script, offering little to change the market’s current view on monetary policy. He said inflation risks and short-term inflation expectations had eased in recent weeks, but he reiterated that prices remain too high and stressed that the central bank remains steadfast in its commitment to bring inflation back down to its 2% target.

Warsh also offered a mostly optimistic view on the US economy, saying labour market conditions were stable and the outlook for growth may have improved. He sounded optimistic about artificial intelligence, saying the US is well-placed to gain from the technology but warning it was too soon to know whether AI would ultimately prove inflationary or disinflationary.

On the institutional front, the Fed Chair reiterated the independence of the central bank and confirmed that the ongoing review of its communications framework and policy tools remains on track. He also reaffirmed his longstanding preference for interest rates to be the Fed's main policy tool, while indicating that any future adjustments to balance sheet policy would be carefully considered and clearly communicated.

Overall, the comments did not provide any new information but reaffirmed last week’s hawkish policy message. The Fed remains optimistic on the medium-term outlook for the US economy even as the global backdrop has grown more uncertain. But price stability remains the “overriding priority” for the Fed.