Federal Reserve Chairman Kevin Warsh warned Friday that recent inflation readings have not demonstrated meaningful improvement in underlying price trends, while stopping short of signaling whether interest rates would need to rise. Speaking at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, his first keynote address at the event, Warsh said the central bank remains squarely focused on bringing inflation to heel. The Fed's benchmark federal funds rate currently stands at a target range of 3.5% to 3.75%. Warsh acknowledged that this summer's inflation readings came in better than expected but said they did not tell him that underlying trends had meaningfully improved. He reinforced his opposition to forward guidance and declined to outline his reaction function, saying policymakers cannot claim sufficient certainty to follow a preset rule. Markets moved on the remarks, with the 2-year Treasury yield rising to 4.28% and traders moving the odds of a rate hike at the September 15-16 meeting to roughly 50%. Warsh also argued that responsibility for 65 months of sustained, elevated inflation rests with the central bank.
Warsh's hawkish inflation remarks raise odds of a rate hike, pushing yields up.
2-year yield rose to 4.28% on increased rate hike odds.
Hawkish Fed stance lifts long-term yields as rate hike expectations rise.
