Fed's Warsh cautions inflation risk during Jackson Hole address

Federal Reserve Chairman Kevin Warsh cautioned about inflation risks during his inaugural Jackson Hole address on Friday. Despite recent inflation measures being better than expected, Warsh expressed concern that they do not indicate significant improvements in underlying inflation trends. He emphasized that the Federal Reserve must be confident that inflation is moving towards its 2% objective at a sufficient pace.

Warsh did not provide forward guidance, but his remarks suggested the Fed may not be done fighting inflation. Bond markets reacted to his speech, with two-year Treasury yields jumping more than 8 basis points, while the 10-year and 30-year yields saw modest increases and decreases, respectively. Treasury Secretary Scott Bessent's recent plans to double the size of the department's buyback program did not receive mention from Warsh.

Data showed PCE inflation held steady at 3.7% in June, while core inflation rose 3.3% year-on-year. Federal Reserve officials grew increasingly cautious about inflation, as seen in the July meeting minutes, which reflected a 9-3 vote to keep rates steady at about 3.6%. Other US central bankers expressed hawkish sentiments, advocating for rate increases.

Warsh's quieter-Fed mantra underscores his commitment to the Fed's price-stability objective of 2% inflation, measured by the personal consumption expenditures (PCE) price index.