Warsh's Conventional Jackson Hole Address Sparks Market Reaction

New Federal Reserve Chair Kevin Warsh delivered his first major policy address at Jackson Hole on August 28, and according to economist Paul Krugman, it was 'utterly conventional.' Warsh stuck to established Fed norms, doubling down on the commitment to a 2% Personal Consumption Expenditures inflation target. This comes as recent inflation readings have landed between 3.3% and 3.7%, indicating that the Fed is still far from declaring victory.

The chair acknowledged the gap between where inflation sits and where it needs to be, signaling that if underlying inflation trends don't improve, the Fed would need to act. Markets took the hint, with the 2-year Treasury yield jumping about 9 basis points after the address. The probability of a September rate hike climbed to roughly 50-60%, according to market pricing.

Krugman noted that Warsh's 'quieter Fed' approach, which focuses on real-time economic data rather than detailed forward guidance, looks a lot like the data-dependent framework that has defined Fed policy for years. This raises questions about whether Warsh's task forces, established to cover inflation, communications, and data practices, will produce any novel approaches.