MNI BRIEF: Warsh - Fed Needs 'New Inflation Framework'

The U.S. economy is still grappling with the consequences of the Federal Reserve's policy mistakes post-Covid that led to the highest inflation rates in 40 years, Fed chair nominee Kevin Warsh said Tuesday, calling for a "different, new inflation framework."

"We are still dealing with a legacy of the policy errors in 2021 and 2022. Once you let inflation take hold in the economy it’s more expensive and harder to bring it down," Warsh said. "There’s probably no more pressing question than the cost of living."

"I believe that price stability should be a change in prices so that no one is talking about it. The sooner we can reform the institution, the sooner we can ensure price stability," he told the Senate Banking Committee at his nomination hearing.

He repeated his criticisms of the central bank's approach to forward guidance, adding that it makes the central bank look bad when forecasts prove wrong.

"The Fed tells the whole world what their dots are going to be, what their forecasts are going to be. Well, the Fed is human, then they hold on to those forecasts longer than they should," he said. (See MNI POLICY: Warsh Could Reshape Fed On Rates, Communication)