Warsh’s hawkish reframing puts two more Fed hikes in view

Federal Reserve Chair Kevin Warsh's hawkish remarks at the Jackson Hole symposium have sparked speculation about two more interest rate hikes from the central bank. Barclays economist Jonathan Millar noted Warsh's speech was noticeably hawkish, with him describing a strengthening economy and emphasizing the sluggish pace of disinflation.

Warsh reaffirmed the Fed's 2% PCE inflation target, insisting it is firm and fixed. He also stated that inflation is neither self-executing nor necessarily mean-reverting. The central banker stressed that policymakers must be confident that inflation is moving toward the target clearly and at sufficient speed. Warsh's remarks were based on six- and twelve-month inflation measures rather than the three-month measures Barclays has emphasized.

Despite July's core PCE price increase of 0.25%, beyond expectations, economists remain cautiously optimistic about broader trends. However, they acknowledge that demand is likely to moderate in the second half of the year. Warsh's commitment to a disciplined, rules-based approach has left little room for debate on the upcoming rate hikes.