Warsh delivers hawkish Jackson Hole speech, fueling speculation of a September rate hike

Federal Reserve Chairman Kevin Warsh delivered a more hawkish message on inflation at the Jackson Hole Economic Policy Symposium on Friday, telling central bankers and market participants that recent consumer price data does not yet show “underlying trends have meaningfully improved” toward the Fed’s target. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Warsh said at the Federal Reserve Bank of Kansas City’s annual policy symposium. Warsh reaffirmed that the Fed’s 2% inflation goal, defined by the Personal Consumption Expenditures (PCE) price index, is “a firm, fixed target.” But he emphasized that “responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank,” underscoring that policy may not yet be restrictive enough to restore price stability on a durable basis. The speech immediately rippled through financial markets. According to the CME Group’s Fed Watch, the implied probability of a 25-basis-point rate hike at the Fed’s September meeting rose to 55.7% on Friday morning, up from 35.4% a day earlier, as traders reassessed the odds of additional ti...