Kevin Warsh discusses inflation and Federal Reserve guidance in Jackson Hole address

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Federal Reserve Chair Kevin Warsh addressed the Kansas City Fed’s symposium in Wyoming, stating that the US economy has demonstrated resilience while inflation remains the central bank’s primary concern. Warsh noted that the PCE index measured 3.7% over the last twelve months and 4.1% over the last six, emphasizing that inflation levels have not meaningfully improved. He signaled a shift away from forward guidance to avoid market ambiguity, asserting that the Fed must ensure inflation moves toward its objective at sufficient speed. Consequently, Warsh bolstered the arguments for a rate hike, noting the labor market is consistent with full employment.

Consequences

Following the speech, traders increased the implied probability of a 0.25% rate hike at the September 15–16 meeting to 55%. Additionally, the dollar index rose 0.4% from its intraday low, while 10-year and 30-year Treasury yields moved in response to the assessment.

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