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Dollar rises on hawkish Warsh tone, September hike odds at 57%
Action Forex says Warsh framed the Fed’s 2% PCE goal as a firm target and pointed to hotter 6-month annualized PCE inflation to support tighter policy expectations.
The U.S. dollar strengthened after Kevin Warsh, in his first Jackson Hole speech as Fed Chair, delivered a hawkish message that pushed September rate hike odds to 57%, according to Action Forex.
While Warsh did not explicitly call for a September hike and avoided conventional forward guidance, he argued inflation remains too high, financial conditions are not broadly restrictive, and the labor market is close to full employment, adding that the Fed has more work to do unless price pressures clearly move back toward 2%.
Action Forex also linked the dollar move to Warsh’s emphasis on central bank responsibility and conventional monetary policy, framing it as more difficult to reconcile with a scenario where monetary discipline would be subordinated to fiscal needs.
In support of that view, Warsh described the Fed’s 2% PCE objective as a firm, fixed target and cited inflation data, including 12-month PCE inflation at 3.7% and a hotter 6-month annualized pace of 4.1%, with broader measures still elevated.