Warsh Speech Boosts Rate Hike Odds, But Market Confidence Still Elusive

Federal Reserve Chair Kevin Warsh's speech at the Kansas City Fed's annual gathering in Jackson Hole, Wyoming was met with relief from financial markets. However, this relief should not be mistaken for confidence. According to economists, Warsh has more work to do to regain market trust.

Warsh clarified his commitment to the 2% inflation target and stated that the policy rate is the Fed's best tool to achieve it. This move was seen as a shift towards a hawkish stance compared to previous public remarks. Rates traders now see a roughly two-in-three chance of a September rate hike, up from one-in-three before the speech.

Economists at Barclays, Societe Generale, and Deutsche Bank are among those penciling in rate hikes for September and December. However, Warsh's speech highlighted his initial missteps as Fed Chair, particularly his 100-day delay in clearly stating his commitment to the inflation target.