Warsh Warns of Inflation Risks at Jackson Hole Gathering

At the gathering of the world's most powerful central bankers in Jackson Hole, Wyoming, Federal Reserve Chair Kevin Warsh delivered a speech that sought to soothe investor nerves. His remarks were a welcome change from his previous minimalist communication style, which had left investors guessing.

The speech was subject to intense scrutiny due to Warsh's bumpy first 100 days on the job and a tumultuous fortnight in US economic policy, with borrowing costs surging to multi-decade highs. US inflation has been above the 2% target for 65 consecutive months, but Warsh assured his audience that he would have 'work to do' if inflation didn't start falling soon.

Warsh recommitted to the existing 2% inflation target and said prices should be the Federal Reserve's 'predominant focus.' He noted that underlying inflation trends haven't improved fast enough, causing market expectations of an interest rate hike in September to jump. However, he refused to commit to action, reiterating his antipathy towards 'forward guidance'.

The speech contained a subtle rebuke to Treasury Secretary Scott Bessent's recent interventions in the bond market, with Warsh emphasizing the value of market prices providing information about the world and avoiding government interference. This stance was echoed by fund manager Stanley Druckenmiller, who criticized Bessent for defending bond prices against fundamentals.