Warsh Walks Fine Line Between Hawkish Instincts and Trump's Demands

The Fed's next move is being closely watched by markets after Kevin Warsh's speech at Jackson Hole. Despite his emphasis on rejecting forward guidance, Warsh effectively communicated the Fed's stance through a different method. He cited inflation data and drew a conclusion that would push him to raise rates, allowing traders to draw their own inference.

Warsh reaffirmed the commitment to the 2% target, leaving no doubt about his intentions. This marks a significant correction from his previous muddled answers, which had led some economists to suspect he might move the goalpost.

The speech also saw the disappearance of two arguments that Donald Trump liked: advances in artificial intelligence and shrinking the Fed's balance sheet could justify lower rates. Warsh now views AI as having no bearing on current decisions.