Economist Claudia Sahm has criticized Federal Reserve Chair Kevin Warsh, alleging that his policies and communication style are adding to market volatility. Sahm voiced these concerns on Bloomberg Surveillance, specifically highlighting the Federal Reserve's decision not to include the dot plot in its recent statement of economic projections as a mistake. She emphasized the need for the Fed to "show their work" to enhance transparency and reduce uncertainty.
Sahm further elaborated on her concerns, stating that Warsh's remarks blur the distinction between measured inflation and underlying inflation. She expressed worry about a Fed Chair who she believes is "unanchored from inflation data," especially since Warsh has not publicly referenced the Personal Consumption Expenditures (PCE) price index, the Fed's long-standing benchmark for price stability, during his public appearances. This comes as headline inflation for June registered at 3.5% year-over-year, marking the 64th consecutive month above the Fed's 2% target.
Warsh has called for new inflation measures, questioning the adequacy of existing gauges and announcing plans for a Federal Reserve data task force to explore better metrics. However, Sahm, the creator of the widely followed Sahm Rule recession indicator, argues that while underlying inflation measures can guide policy, they are not substitutes for the Fed's official benchmark. She believes that the Fed's commitment to price stability loses meaning if policymakers do not use a common measure, asking: "2% of What?"
Market strategist Charlie Bilello and renowned economist Peter Schiff have also voiced criticisms regarding the Fed's credibility on inflation. Sahm warns that Warsh's policies could potentially undo 20 years of policy progress, indicating her profound concern about the direction of the central bank's approach to inflation targeting and communication.
