Overview
Federal Reserve Chair Kevin Warsh delivered the keynote address at the Jackson Hole Economic Policy Symposium, an annual conference organized by the Kansas City Fed that this year focused on “Financial Innovation — Implications for Payments and Policy.” In his remarks Warsh stated that the underlying inflation trend in the United States has not “meaningfully improved” and reiterated that the central bank’s primary focus must remain on delivering price stability.
Market Reaction
Following the speech, traders raised the probability of a 25‑basis‑point rate hike at the September Federal Open Market Committee meeting to more than 55 % according to the CME FedWatch tool, up from roughly 35 % the previous day. Treasury yields moved higher, with the benchmark 10‑year yield climbing to 4.68 % (up about 1 bp) and the 2‑year yield jumping 6.8 bp to 4.30 %. The equity markets initially slipped, with the S&P 500 and Nasdaq Composite posting modest declines before rebounding later in the session.
Inflation Data
Warsh highlighted that the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose 3.7 % year‑over‑year in July, while the core PCE measure (excluding food and energy) increased 3.3 % YoY. He added that the 12‑month change in the PCE index stands at 3.7 % and the six‑month change at 4.1 %, figures that are well above the Fed’s 2 % long‑term target. Comparable measures from the consumer price index (CPI) are also elevated, as are the core versions of both PCE and CPI.
Labor Market and Other Economic Indicators
Warsh noted that, despite the labor market appearing consistent with full employment, recent July labor data showed a weak reading on non‑farm payrolls, adding to the price‑stability concerns. He also referenced ongoing geopolitical tension, noting that oil prices remain elevated amid the continuing U.S.–Iran conflict, which sustains inflationary pressures.
Dissent Within the Fed
At the July FOMC meeting the Fed left policy rates unchanged, but three regional presidents—Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan—dissented. The meeting minutes indicated that many policymakers believed further rate hikes would likely be required if inflation does not decline.
Forward Guidance Stance
Warsh reiterated his discomfort with forward guidance, arguing that the practice, introduced during the global financial crisis, has “overstayed its welcome.” He warned that regular forward guidance can create ambiguity and limit policymakers’ freedom to make appropriate decisions as conditions evolve.
Treasury Actions and Debt Context
The Treasury Department recently intervened in the bond market by expanding long‑bond buybacks after the 30‑year yield reached a 19‑year high earlier in the month. Nonetheless, the move provided limited relief, especially after reports that U.S. sovereign debt has surpassed $40 trillion.
Commentary from Market Participants
Peter Schiff, chief economist at Euro Pacific Asset Management, criticized Warsh for attributing 65 months of high inflation solely to the Fed, noting the omission of the government’s shared responsibility and the soaring national debt.
Equity Market Details
The initial negative reaction in equities saw the S&P 500 dip, while the tech‑heavy Nasdaq Composite extended losses before modestly recovering. Popular S&P 500 tracking ETFs—including SPDR S&P 500 ETF Trust, Vanguard S&P 500 ETF, and iShares Core S&P 500 ETF—experienced brief price pressure.