Warsh Keeps Rate-Hike Door Open at Jackson Hole
Federal Reserve Chair Kevin Warsh delivered his first Jackson Hole address this week, and it was not what investors were hoping to hear. Instead of easing concerns about interest rates, Warsh emphasized that elevated inflation levels could still force the Fed's hand on further hikes.
The market-implied odds of a September increase have risen above 55%, according to the CME's FedWatch tool. This is a stark contrast to earlier this week when the likelihood of a rate hike was lower.
In his keynote address, Warsh said that while PCE and CPI readings were better than expected, they do not tell him that underlying trends have 'meaningfully improved.' He also reaffirmed the Fed's price stability objective of 2%, as measured by the PCE price index, which is a firm and fixed target.
The inflation fight is far from over, according to Jeffrey Roach, chief economist for LPL Financial. Warsh repeatedly emphasized that underlying inflation remains too high and that progress toward 2% has been slower than many expected.