AI Summary
5 min readWhen Adam Posen, president of the Peterson Institute and a former Bank of England rate-setter, grades Fed Chair Kevin Warsh’s Jackson Hole speech a “B minus,” he is not being flippant. The grade reflects a deeper worry: that despite a more conventional performance than his earlier, confusing press conferences, Warsh is still trying to maximize his “last-minute discretion” over policy — a stance that, in Posen’s view, could end up making things “really messy” for the Fed and the economy.
The B-Minus Speech and the Ghost of Greenspan
Posen found the speech a meaningful improvement over Warsh’s prior public statements, which had created “a huge amount of not just confusion but in central banking circles” about his short- and long-term intentions. Warsh cleaned up some important ambiguities: he explicitly confirmed a 2% inflation target (which he had previously seemed to question), dismissed wage inflation as a reliable predictor of overall inflation, and acknowledged the importance of financial conditions. But the speech had two structural problems.
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What you'll learn
- 1 (03:43) **Grading Warsh's Jackson Hole Speech** - Posen gives Chair Warsh's speech a B-minus, calling it a significant improvement after months of confusing communication.
- 2 (07:36) **The Risk of "Last Minute Discretion"** - Posen identifies Warsh's biggest problem: a pattern of reserving the right to make up his mind at the last minute without clear pre-commitment.
- 3 (11:39) **The Role of the Fed Chair vs. the Committee** - Posen explains how Fed chairs have historically wielded power, and why Warsh's "family fight" rhetoric may not match reality.
- 4 (14:41) **Was Powell's Performance Really That Bad?** - Posen defends the critique of Powell's Fed, arguing it was late to hike, early to cut, and behind the curve again.
- 5 (18:22) **Defining Political Interference vs. Healthy Pressure** - Posen draws the line between acceptable political carping and dangerous threats to Fed independence.
- 6 (27:24) **The Surprise Radicalism of the Communications Task Force** - Posen predicts the King-Fisher committee will be more radical than expected, based on their recent skepticism of central bank communications.
- 7 (34:09) **The Brain Drain of Economists to AI Companies** - Posen discusses the unsettling trend of top economists leaving academia and think tanks for huge salaries at firms like Anthropic.
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Guests on this episode
Show Notes
Kevin Warsh gave a hawkish speech at this year's annual Kansas City Fed Symposium in Jackson Hole, but that doesn't mean the challenges are over. Will the Fed actually pull the trigger on rate hikes? What happens if the central bank doesn't act quickly enough to curb inflation? And how exactly will the new chair want to leave his mark on the Fed? In this episode, we speak with Adam Posen, president of the Peterson Institute for International Economics, who gives us his take on the direction of monetary policy and he grades Warsh's speech. We also discuss why high inflation in the US is different than the inflation seen in other countries, how the Treasury's wading into the bond market affects Fed independence, which of the Fed task forces might be the most impactful, the "messy jobs" theory of AI, and what Warsh really means when he says he wants the FOMC to have a “good family fight.”
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