Warsh's Hawkish Comments Fuel Barclays' Rate Hike Expectations

Barclays economists have revised their expectations for Federal Reserve interest rate hikes following a speech by Fed Chairman Kevin Warsh at Jackson Hole. The bank now expects a 25-basis-point rate hike in September, followed by another in December.

Warsh's remarks were seen as 'quite hawkish' by Barclays, with the chairman describing an economy that has strengthened and judged labor markets to be consistent with full employment. He also emphasized that inflation is not self-executing or mean-reverting, and policymakers must be confident it is moving towards target 'clearly and at sufficient speed.'

Warsh's comments on inflation were particularly noteworthy, as he placed more emphasis than expected on the sluggish pace of disinflation. The chairman reaffirmed the Fed's 2% PCE inflation target as a 'firm, fixed target,' and emphasized that policymakers must be confident in its achievement.

The revised data showed a bigger temporary boost to private spending in the second quarter, with consumer spending revised up to 3.5% annualized growth and private domestic final purchases to 4.2%, the strongest pace since early 2023.