Warsh's Hawkish Signals Send Markets into a Tailspin
US Federal Reserve Chairman Kevin Warsh delivered the keynote address at the annual Jackson Hole Economic Policy Symposium on Friday in Wyoming. His remarks on inflation and the rate outlook became the market's focus, sparking a fresh round of interpretation as investors estimated the central bank's next moves.
Inflation remains the 'predominant concern' for the Fed, with Warsh stating that price stability is the organization's foremost priority. The US's July PCE rose 3.7% year on year, slightly above expectations, while core PCE held at 3.3%. Despite this, Warsh painted a resilient picture of the US economy, pledging to keep a close watch on market internals and corporate earnings trends.
Markets broadly interpreted the speech as hawkish, with Padhraic Garvey, America's regional head of research at ING, stating that 'he was keen not to provide forward guidance, but his words smacked of forward guidance; he was net hawkish.'
The market reaction was swift, with US stocks ending lower on Friday and bond markets reacting more sharply. Short-term Treasury yields moved substantially higher, and market pricing for a September rate hike jumped to 57%.