🗽 Fed chair, Kevin Warsh speech from Jackson Hole

• According to Warsh, the Fed’s 2% inflation target remains a firm and unchanged benchmark for monetary policy.
• Warsh said that recent inflation data do not yet show a meaningful improvement in underlying inflation trends.
• With the labor market remaining stable and inflation still above target, the Fed’s main priority should currently be reducing price pressures.
• Interest rates remain the Fed’s primary tool for restoring price stability while supporting a healthy labor market.
• Warsh suggested that current financial conditions are difficult to describe as restrictive, leaving the Fed room to tighten policy further if inflation does not decline.
• However, he did not indicate whether a rate hike could come as early as the September meeting, nor did he provide a specific path for interest rates in the coming months.
• Warsh remains skeptical about forward guidance, arguing that overly detailed Fed communication can limit the central bank’s flexibility and exert excessive influence on investors’ decisions.
• At the same time, the Fed Chair struck an optimistic tone on economic growth, pointing in particular to strong investment in AI infrastructure and technology.
• A growing group of Fed officials believes interest rates should be higher and that the current 3.50–3.75% range may be doing too little to restrain economic activity and, consequently, inflation.
• Futures markets currently assign a greater probability to a rate hike by the end of the year, although the consensus still points to no change at the September meeting.
• Core PCE inflation rose 3.3% year-on-year in July, unchanged from June, strengthening the case of the more hawkish members of the Fed.
• Additional sources of inflationary pressure include elevated energy prices linked to the war with Iran, rising semiconductor prices and renewed trade tensions.
• Warsh also accepted the Fed’s responsibility for the prolonged period of above-target inflation, saying that responsibility for 65 months of sustained elevated inflation “sits squarely with the central bank.”

Importantly, the Fed Chair argues that current financial conditions are difficult to describe as restrictive, suggesting that the Fed still has room to tighten policy further. He also sees potential for substantially stronger economic growth, supported in part by massive capital spending on AI and technology infrastructure. At the same time, he pointed to weaker areas of the economy, particularly housing and agriculture.

A growing group of Fed officials believes the central bank should have already raised interest rates. The more hawkish camp warns that failing to act now could force the Fed to tighten more aggressively later, increasing risks to the labor market. Warsh also strongly criticized excessive forward guidance, arguing that overly detailed policy signals constrain the Fed’s flexibility and make investors too dependent on central bank communication.

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Source: xStation5