Marshmallows and monetary policy

Daily update

Amidst the toasting of marshmallows at the Jackson Hole summer camp for economists, there are some hopes Federal Reserve Chair Warsh will offer a sensible structure for thinking about US monetary policy. Warsh’s communication style, telling investors “you figure it out”, is not working, creating uncertainty and introducing an unnecessary risk premium into financial markets.
The worst case would be a reiteration of Warsh’s belief in the productivity pixie, and platitudes about future higher growth. Technology’s impact on macroeconomic productivity is uncertain, and risks of a “brain drain” from the US and lower immigration also affect growth. The best case would be clearly setting out how central banks should react to one-off price shocks (oil, tariffs), and how to handle expectations when the social media world makes expectations more volatile and less reliable.
US August Michigan final consumer sentiment data is not market moving, but the divergence of inflation expectations emphasizes their unreliability. Democrats believe inflation will be almost double what Republicans expect.
Japan’s August Tokyo consumer price inflation data rose as expected—there are a lot of government policies distorting market price signals. Preliminary August consumer price data from France, Spain, and Belgium should show broad stability in the core measures, with some increase in the headline number.