September rate-rise odds top 50 per cent after Warsh puts prices first
In his first Jackson Hole speech as Fed chair, Kevin Warsh put prices first, citing a 3.7 per cent rise in the PCE price index over 12 months and a 4.1 per cent annualised rise over 6 months. NPR reported that investors moved the implied chance of a September rate increase from roughly one in three before the speech to above 50 per cent, even though Warsh offered no rate path or timetable.
Economics & Markets··Night
Prices move to the centre
Kevin Warsh used his first Jackson Hole address as Fed chair to say the central bank's predominant focus should be prices. He put the rise in the PCE price index at 3.7 per cent over the past 12 months and at a 4.1 per cent annualised pace over the past 6 months. Prices increased by more than 3 per cent over 12 months for 54 per cent of goods and services in the basket; 49 per cent posted an annualised rise above 3 per cent over 6 months. The Fed still has work to do, he said, unless the underlying trend is moving to target fast enough.[1]
Markets lift the September probability
Before the speech, investors priced the chance of a September rate rise at roughly one in three. NPR reported that the market-implied probability climbed above 50 per cent after Warsh spoke. The repricing came with annual consumer inflation at 3.4 per cent in July and the Fed's preferred measure at 3.7 per cent. Warsh described the labour market as stable, investment as strong and consumer spending as resilient. He still gave no rate path and no timetable for a decision.[2]
A call for a quieter Fed
Warsh also turned from the inflation outlook to the way the Fed speaks to markets. He declined to present price stability and maximum employment as competing choices within the mandate. Forward guidance, he argued, can create ambiguity while trying to provide clarity. A quieter Fed that speaks with greater purpose would be better able to meet its objectives, he said. The address therefore set a clear priority for price pressure and central-bank communication while withholding a date for any rate move.[1]
