- Fed Chair Kevin Warsh expressed concern about elevated inflation, noting that "this summer's [inflation] readings were better than expected, they do not tell me that underlying trends have meaningfully improved."
- Warsh stated that inflation is not slowing meaningfully and vowed to hit the Fed's 2% target.
- Warsh advocated for a quieter Fed, opposing forward guidance as 'hand-holding for markets.'
- Traders raised the probability of a rate hike at the September policy meeting to 45.7%, about 10 percentage points higher than a day ago, according to the CME Group's FedWatch.
Federal Reserve Chair Kevin Warsh expressed concerns about persistent inflation during his speech at Jackson Hole, stating, "While this summer's [inflation] readings were better than expected, they do not tell me that underlying trends have meaningfully improved." He emphasized the Fed's commitment to achieving a 2% inflation target, asserting, "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."
Warsh's remarks hinted at the possibility of higher interest rates if inflation does not ease, as he noted, "market prices show confidence that we will deliver price stability. And I can assure you they're right." He called for a "quieter Fed, more purposeful in its communications," distancing himself from the previous reliance on forward guidance, which he criticized as "hand-holding for markets."45
In his speech titled "In Our Time," Warsh quipped, "You can call it an outline, you can call it a trail map, just don't call it forward guidance," indicating a shift in the Fed's communication strategy. He acknowledged the need for more reliable models and robust rules to guide policy decisions, stating, "With so much changing so fast in geopolitics, global supply chains, and technology, it's wise to be modest about what we can and cannot know."
Traders reacted to Warsh's comments, raising the likelihood of a rate hike at the September policy meeting to 45.7%, reflecting increased market sensitivity to the Fed's inflation stance.6
“Warsh's speech, titled 'In Our Time,' opposed forward guidance as 'hand-holding for markets' and called for a 'quieter Fed.' Traders responded by raising the probability of a September rate hike to 45.7%, up about 10 percentage points from a day earlier, per CME Group's FedWatch.”
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