Jackson Hole Symposium Highlights: US Fed Chair Kevin Warsh says inflation ‘too high’, hints at interest rate hike

Gold prices fell more than 1% after Fed Chair Kevin Warsh said inflation was a bigger concern than the slowing labour market. Spot gold fell below $4,600 an ounce as markets increased bets on a possible Fed rate hike as early as next month.

Investors argue Warsh's approach overlooks how strongly expectations of Fed policy influence financial markets, NYT reported. Recent moves in Treasury yields have partly reflected a shift in expectations from rate cuts to a greater likelihood of rate hikes.

Fed Chair Kevin Warsh's limited guidance on future policy is part of his effort to reshape how the central bank communicates, arguing that excessive transparency can muddy signals from financial markets and lead officials to focus too much on near-term rate decisions, NYT reported.

Markets are now pricing in nearly even odds that the Federal Reserve will raise interest rates by 25 basis points at its September meeting, as investors assess Warsh's comments on inflation and monetary policy, according to NYT.

Financial markets remained relatively stable after Fed Chair Kevin Warsh's speech, with two-year Treasury yields rising to their highest level in about a month while stocks were broadly flat, New York Times reported.

Fed Chair Kevin Warsh said he was "impressed by the overall performance of the economy", while cautioning that better-than-expected inflation readings do not show that underlying price trends have "meaningfully improved", according to Reuters. He acknowledged that economic uncertainty remains.

Key August unemployment, job growth and consumer inflation data are due early next month, giving policymakers fresh data before their September meeting, Reuters reported. Warsh's remarks have increased focus on whether persistent inflation could prompt the Fed to raise rates.

The Fed has kept its policy rate in the 3.50%-3.75% range since December. Three policymakers dissented at the July meeting, favouring tighter policy, according to Reuters.

According to Reuters, traders now see a 57% chance of a Fed rate hike at the September 15-16 meeting, up from roughly one-in-three before Kevin Warsh's Jackson Hole speech. A hike by the December meeting had been priced at more than 90% before his remarks.

Warsh thanked his fellow policymakers and attendees for the "warm reception" he received during his first 100 days as Fed chair, according to Reuters. He also joked about the views he had received from people in the room, both solicited and unsolicited.

Warsh said sound monetary policy, when carried out effectively, helps households and businesses prosper, strengthens the economy and supports America's leadership globally, according to Reuters. "Our country needs us to think carefully and act wisely," he said.

Fed Chair Kevin Warsh concluded his debut Jackson Hole speech by saying he was committed to "a discipline, not a decision", stressing that policymakers take their responsibility seriously, Reuters reported.

Warsh said inflation expectations were currently anchored but needed to be closely monitored, Reuters reported. "It's the Fed's job to make sure that inflation expectations do not get unanchored," he said, without giving a timeline for potential rate hikes.

Warsh said progress on inflation over the past two years had been "modest". He added that while summer readings were better than expected, they did not show that underlying inflation trends had "meaningfully improved".

Fed Chair Kevin Warsh said consumer spending was healthy and labour markets stable, but the inflation outlook was "more concerning". "The Fed's predominant focus right now should be on prices," he said, according to Reuters.

Warsh said credit and loan markets showed few signs of restraint despite the Fed's short-term policy rate remaining unchanged since December, according to Reuters. He said he would be "hard pressed" to describe broad financial conditions as restrictive, even as housing and agriculture face strains.

Kevin Warsh said he was "impressed by the overall performance" of the US economy, which he said appeared to have strengthened, Reuters reported. He added that both Main Street and Wall Street had shown "remarkable" resilience in the face of economic shocks.

Warsh warned that if markets rely heavily on Fed guidance while the Fed relies on market prices, policymakers could be "blinded to new developments", caught unprepared and more likely to make policy errors.

Warsh said market participants should track real information across the economy and draw their own conclusions rather than rely heavily on the Fed for their next trade. He urged the central bank to remain "humble and never naive".

Warsh said transparency about future policy decisions should not be an end in itself, arguing that Fed communication must primarily serve the goal of "getting monetary policy right".