Former Fed Economist Claudia Sahm Says Kevin Warsh Is 'Unanchored From Inflation Data'
Former Federal Reserve economist Claudia Sahm on Friday criticized Fed Chair Kevin Warsh‘s recent comments on inflation, saying the central bank’s definition of price stability has become unclear under his leadership.
Sahm Says Fed’s Inflation Goal Needs A Clear Yardstick
In a blog titled “2% of What?”, Sahm said the Fed’s commitment to price stability loses meaning if policymakers do not use a common measure to define it.
She added that Warsh has repeatedly referred to restoring price stability while stopping short of explicitly identifying the benchmark used to measure it.
Since taking office, Warsh has reaffirmed the Fed’s 2% inflation target but has not publicly referenced the Personal Consumption Expenditures price index during his confirmation hearing, first press conference, congressional testimony, or other public appearances, according to Sahm.
“The Fed worries about unanchored inflation expectations; I am starting to worry about a Fed Chair who is unanchored from inflation data,” Sahm said in a post on X.
The Fed Has Targeted 2% PCE Inflation Since 2012
The Fed formally adopted a 2% inflation target in 2012, defining price stability as annual inflation measured by the Personal Consumption Expenditures price index.
While policymakers also monitor measures such as core, trimmed-mean, and median inflation to assess underlying price trends, those indicators are used to guide policy rather than define the Fed’s inflation target.
Sahm, creator of the widely followed Sahm Rule recession indicator, said underlying inflation measures can help policymakers determine where inflation is headed after temporary price movements fade, but they are not substitutes for the Fed’s official benchmark.
Warsh Has Called For New Inflation Measures
In Warsh’s recent congressional testimony, he said existing inflation gauges are imperfect measures of underlying inflation and announced plans for a Federal Reserve data task force to examine whether better measures can be developed.
He also questioned whether existing trimmed-mean inflation measures adequately capture underlying price trends.
Sahm said Warsh’s remarks blur the distinction between measured inflation and underlying inflation, adding that clearer communication from the Fed would help reinforce its long-standing inflation framework.
Headline inflation for June came in at 3.5% year-over-year, down from 4.2% in May, below the 3.8% forecast, marking the 64th straight month that inflation remained above the Federal Reserve’s 2% target.
Earlier this week, market strategist Charlie Bilello said the prolonged stretch had eroded the Fed’s credibility on inflation after June marked another month above its target.
Renowned economist Peter Schiff also criticized Warsh’s testimony this week, saying the Fed continued to define inflation incorrectly and failed to acknowledge the role of fiscal policy.
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