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Fed Chairman Warsh expresses concern about inflation, advocates for 'quieter' central bank
In a Jackson Hole speech, Fed official Kevin Warsh said inflation is still running hot and that recent readings don’t show underlying improvement, while avoiding explicit forward guidance; markets reacted with higher Treasury yields and increased odds of a September hike.
Fed official Kevin Warsh told CNBC at Jackson Hole that he remains concerned inflation is still too far above the Fed’s goal. He said that even though recent summer inflation prints were better than expected, they do not yet indicate that underlying trends have improved enough. In his view, the Fed needs to be confident that inflation is moving toward target “clearly and at sufficient speed,” otherwise “we have work to do.”
He largely avoided giving explicit forward guidance or laying out a reaction function, arguing instead against a regime where market participants treat the Fed as the basis for their next “trade.” Still, he suggested the possibility of higher rates: the article notes that Treasury yields moved sharply higher after the speech, with the 2-year note rising nearly 8 basis points to 4.31%.
Traders, according to the CME FedWatch tool cited in the article, raised the probability of a September rate hike to 55.7% after his comments. The piece also says Warsh expressed confidence in the economy having strengthened and referenced AI-related benefits and resilient business and consumer spending, while acknowledging hiring is slowing.
What to watch next is how upcoming inflation data changes the debate Warsh highlighted between “better than expected” headline readings and whether the underlying trend is genuinely improving.
Why this matters for FX
The remarks feed directly into rate-path expectations. If markets bring forward expectations for tighter policy, US short-end yields and the broader US yield curve can reprice, tightening financial conditions and supporting the USD via interest-rate differentials.