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Warsh signals future rate hikes tied to inflation data at Jackson Hole
Market odds for a September hike jumped to 60%, up from 35% the prior day, after Warsh emphasized he would raise rates if inflation fails to improve.
Federal Reserve Chairman Kevin Warsh’s Jackson Hole remarks focused on responding to rising inflation and laying out how the Fed would react if price data does not improve, drawing close attention from investors and economists. Harvard professor and former IMF chief economist Ken Rogoff said Warsh made clear that the central bank would hike interest rates if inflation does not get better.
Rogoff said the commitment to a potential move surprised him, because his baseline expectation had been that the Fed could delay action until after the midterms. He added that demonstrating independence through rate hikes could come with political and economic consequences, especially if rates are raised at the Fed’s September meeting.
According to the report, market odds for a September rate hike rose to 60%, from 35% the previous day, following the speech. Rogoff also pointed to earlier confusion after Warsh’s July press conference, when questions about whether the Fed would raise rates to control inflation left markets uncertain about the credibility of the Fed’s strategy.
Rogoff described Warsh’s latest speech as his best so far and said it helped clarify the central bank’s approach after concerns were sparked by a discussion of bond yields moving higher in July. He also suggested Warsh’s messaging was influenced by pressure from political and Treasury dynamics, though he did not specify details beyond that characterization.