Fed Chair Warsh: 2020 inflation framework was a "mistake" and we will restore price stability
US Federal Reserve Chair Kevin Warsh acknowledged during a congressional hearing that the central bank's 2020 framework tolerating higher inflation was a "mistake" that led to higher-than-expected inflation, pledging to take full responsibility for restoring price stability.
US Federal Reserve Chair Kevin Warsh appeared before the House Financial Services Committee on the first day of presenting his semiannual monetary policy report, in a session that lasted about three hours during which he answered committee members' questions.
Asked how price stability could be achieved in the short term with the current tools, Warsh said they wanted economic growth to be broader-based and inflation to remain limited, noting that many factors lie beyond the Federal Reserve's direct control, such as conflicts abroad.
Warsh said inflation is a "choice," explaining that restoring price stability rests on three pillars, the first being reaffirming the commitment to price stability and the second taking full responsibility. "This is not the time to shift responsibility or blame others. The Federal Reserve can restore price stability and it will," he said, noting that the bank has sufficient tools to achieve that goal through interest-rate policy and the balance sheet.
Asked for his assessment of the monetary policy framework adopted by the Federal Reserve in 2020, which tolerated higher inflation, Warsh said he had strongly criticized the framework when it was announced, adding that the approach led to higher inflation than expected.
Speaking candidly, Warsh said: "This was a mistake. This framework did not achieve its goals, and I am glad my predecessors dealt with it before I took office," adding that all policymakers are prone to error but mistakes must be acknowledged openly. He concluded: "Had that mistake been acknowledged earlier, we would not have had to bear the burden of this unnecessary tax throughout the past five years."
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