Warsh's Hawkish Remarks Send US Dollar Soaring as Rate Hike Odds Rise
The US Dollar Index rallied on Friday, climbing 0.36% to around 99.50, after Federal Reserve Chair Kevin Warsh emphasized the importance of price stability in a speech at the Jackson Hole Symposium.
Warsh stressed that policymakers need to be confident that underlying inflation is moving toward the central bank's objective, and warned that they still 'have work to do' if this is not the case. He acknowledged that recent data have been better than expected but noted that they are not sufficient to demonstrate a meaningful shift in underlying price dynamics.
The Fed Chair reiterated that the 2% Personal Consumption Expenditures (PCE) inflation target remains 'firm and fixed.' Meanwhile, he offered an upbeat assessment of the US economy, describing consumer spending as healthy and the labor market as stable, while pointing to rapidly increasing business investment.
The combination of resilient economic activity and persistent inflation concerns triggered a significant repricing of monetary policy expectations. According to the CME FedWatch Tool, markets now assign around a 56% chance to an interest-rate hike at the Fed's September meeting, up from roughly 36% before Warsh's speech.
The increase in expectations for a September rate hike provided fresh support to the US Dollar and helped it advance toward 99.50. However, other economic releases on Friday sent mixed signals, with the preliminary Nonfarm Payrolls (NFP) Benchmark Revision showing a downward adjustment of 79K jobs, or 0.1%, to total nonfarm employment for the twelve months through March.