Former Minneapolis Fed President Gary Stern: We need to keep our eyes on inflation expectations

Summary

Former Minneapolis Fed President Gary Stern expects Fed Chair Warsh to reaffirm the Fed's 2% inflation commitment and says no immediate rate action is needed because inflation expectations remain anchored and the economy is not running hot on its own. He warns that Iran-related energy disruptions and tariffs could cause inflation expectations to deteriorate. Stern also argues that supply-side policy changes could reduce inflation without Fed action.

• Gary Stern expects Fed Chair Warsh to emphasize the commitment to 2% inflation at Jackson Hole.
• He sees no need for Fed action next month because the economy is not running hot and inflation expectations are anchored.
• Iran-related energy disruptions and tariffs are the key risks that could raise inflation expectations.
• Bond market participants are voicing concern that these inflation impulses could become built in.
• Market-based measures such as TIPS and forward inflation have not deteriorated enough to require immediate action.
• Stern says removing tariffs and disciplined deportation policy could improve supply and reduce inflation pressure.
• Earlier, Cleveland Fed President Beth Hammack said policy is not restrictive and businesses are happy to borrow.