Warsh Warns of High Inflation, Sends Wall Street into Downturn
US Federal Reserve chief Kevin Warsh sent Wall Street into a downturn on Friday after warning of high inflation and hinting at a potential rate hike. In a highly anticipated speech at the Jackson Hole symposium, Warsh emphasized that fighting high inflation is a priority for the Fed. He stated, 'We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.'
The Fed's target rate of 2% is nearly double the current inflation rate in the US economy, which stands at 3.7%. Investors are concerned about high energy prices due to the ongoing war with Iran and worry that these costs could persist as winter approaches.
Warsh's comments were more hawkish than expected, causing short-term US Treasury bonds to spike in anticipation of a higher Fed rate. Futures markets increased the odds of a rate hike in September, while the dollar rallied against major currencies.
Stephen Brown, an economist at Capital Economics, noted that Warsh's speech 'delivered a far clearer, and hawkish, message than his last press conference appearance' in July. Brown also suggested that if economic growth remains strong and inflation persists, hikes may be on the table.