Warsh's Hawkish Tone Fuels Rate Hike Speculation at Jackson Hole
Federal Reserve Chair Kevin Warsh addressed the Jackson Hole conference, an opportunity for him to speak more directly about monetary policy after two previous press conferences fell flat. He began to do so, but still avoided discussing a critical issue.
Warsh's economic assessment highlighted that the labor market is consistent with full employment and that achieving price stability is the Fed's primary goal. He emphasized the commitment to the 2% personal consumption expenditures target over other measures, which are showing higher readings.
The Fed's key tool remains short-term rates, and Warsh noted that unconventional policy should be used 'sparingly, if at all.' The latest data shows year-over-year PCE at 3.7%, with a six-month change annualized at 4.1%. These numbers are above the target.
Warsh's assessment was seen as hawkish, causing bond market yields to surge and increasing the likelihood of a September rate hike to almost two-thirds from one-third. However, he did not definitively signal that a hike is in the cards.