Warsh Signals September Rate Hike as Fed and Trump Clash

Kevin Warsh, Chair of the Federal Reserve, has signaled that the Fed may raise interest rates in September. In his first Jackson Hole speech since taking office, Warsh emphasized the need for confidence that underlying inflation is moving towards target clearly and at a sufficient pace. He stated that if this is not the case, 'we have work to do.'

Warsh's comments were seen as a departure from President Trump's expectations, who has been pushing for rate cuts. The Financial Times noted that the Fed and the Trump administration are on a 'collision course.' Warsh also dismissed market speculation that the Fed is looking to tweak its inflation target, reiterating that the 2% target on the personal consumption expenditures (PCE) price index remains in place.

The speech was unusual for Warsh, who has rarely expressed public concern about U.S. inflation since taking office. He cited several inflation gauges running above target, including a PCE price index rise of 3.7% in July from a year earlier and a consumer price index (CPI) increase of 3.4%. Warsh stated that 'these numbers tell the same story: inflation is running above the Fed's 2% target.'

The market reacted swiftly to Warsh's comments, with investors betting that the Fed will raise rates in September. Federal funds futures saw a jump in probability of a September hike from around 35% to 57.5%, while the probability of holding steady fell to 42.5%. The next FOMC meeting is scheduled for September 15-16.