Warsh Shifts Tone at Jackson Hole

The Federal Reserve's communications approach has undergone a significant shift under the leadership of Chairman Kevin Warsh, according to BCA Research. In his first Jackson Hole speech, Warsh reset his tone to align with traditional central banking practices.

BCA strategist Felix Vezina-Poirier noted that after mixed reviews of Warsh's initial meetings, he laid out a reaction function in line with the rest of the FOMC. This approach suggests that the Fed will respond to incoming data as usual.

The speech did not provide guidance for the September meeting, where markets now price roughly even odds of a hike. However, Warsh confirmed that the Fed's commitment to a 2.0% PCE inflation target remains unchanged. He also reaffirmed that the Fed funds rate is the main policy tool for now.

BCA Research believes that the data do not warrant a hike yet, with recent labor and inflation prints falling short of expectations. The firm expects core PCE inflation to move lower as extreme price moves fade, with the 12-month core PCE running 88 basis points above core CPI.