Federal Reserve Chairman Kevin Warsh: Inflation Not Meeting Targets, More Work to Do, No Rate Hike Announced for September
Federal Reserve Chairman Kevin Warsh delivered his first keynote speech titled "Our Time" at Jackson Hole, stating that the price stability target of 2% measured by PCE is clear and fixed, and that price stability will not be achieved automatically. The twelve-month PCE is at 3.7%, and 4.1% for six months, with about 54% of items in the basket having increased over 3% in the past twelve months. The standard is that we must be confident that underlying inflation is moving towards the target at a sufficient pace; otherwise, "we have work to do." The policy rate has been maintained at 3.50% to 3.75% since December last year. He did not announce a rate hike for September, stating that the commitment is to discipline rather than a specific decision.
He noted that the overall economic performance is impressive and resilient, with little sign of policy tightening in the credit and loan markets, making it difficult to describe broad financial conditions as restrictive. Employment is close to full, with current focus on prices. He advocates for a quieter Federal Reserve, using less forward guidance, allowing the market to rely more on data pricing rather than guessing the next move. He opened by saying this is an outline or roadmap, not to be called forward guidance. Artificial intelligence is written as a potential new factor of production, with top lab token sales annualizing over $100 billion, a year-on-year increase of more than five times, but this cannot be used as a reason to tolerate high inflation or to ease prematurely. According to Reuters, the market raised the probability of a September rate hike from about 40% to about 60%.
The buyers are the bond and dollar trading desks that need to reprice the interest rate path; the sellers are the central bank reducing officials' hints and pushing pricing power back to data. Funds are shifting from the "dot plot" to inflation components and credit conditions. Benefiting are short-term interest rate trades; pressured are long-duration assets valued based on a loose narrative. The event is driven by the keynote speech at the annual seminar.
Source: Public Information
ABAB AI Insight
Warsh replaces the rate hike calendar with "work to do." The 2% target is re-anchored, responding to speculation about a potential change in his target. Financial conditions are not tight, effectively removing the excuse for a rate cut based on "already tight enough." A quieter Federal Reserve compresses the market share of the dot plot and post-meeting press conferences, allowing the Treasury yield curve to read PCE components itself. The AI paragraph leaves room for growth optimism while cutting off the shortcut of "productivity will come, so we can tolerate inflation." The market raising the September rate hike probability indicates that traders are hearing the conditional statement about a rate hike, not the impression of "not hawkish."
The capital path shifts communication from guiding trades to constraining itself. Reducing the number of meetings and extending the voting interval will lower the turnover of policy options. The token sales figures being included in the central bank's speech equate to incorporating computing power expenses into macro observations, but not into the current reaction function. Money flows from leveraged positions betting on rate cuts to hedging against the "still have work to do" interest rate risk.
The benchmark is Bernanke firmly stating the inflation target, Powell changing his stance at Jackson Hole, and Volcker replacing forecasts with actions. The current phase is a transition: unconventional communication is retreating, and short-term interest rates are becoming the main tool again. Control lies in whether data provides confidence in "sufficient speed," not in the adjectives of a single speech.
Structurally, there is a transfer of pricing power. The mechanism is: the less guidance there is, the more the market must price the inflation path itself; the quieter the central bank, the more weight a single sentence of "there's still work to do" carries. After the target is fixed, the debate shifts from whether to have 2% to whether it is fast enough.
ABAB News · Law of Cognition
The fixed element is the target, the variable is whether it is fast enough
If financial conditions are not tight, there is little excuse for rate cuts
The quieter the central bank, the more valuable a statement of "there's still work to do" becomes