Federal Reserve Chair Kevin Warsh used his inaugural Jackson Hole speech to signal a shift in his communication style, aligning more closely with the consensus view of the Federal Open Market Committee. While he did not issue guidance for the September policy meeting, where markets were pricing roughly a 50-50 chance of a rate hike, Warsh outlined a reaction function that mirrors the rest of the committee.
Warsh reiterated the Fed’s commitment to a 2.0% personal consumption expenditures (PCE) inflation target, a stance that had been left open to revision in July. He confirmed that the federal funds rate remains the primary tool for monetary policy at present.
BCA Research strategist Felix Vezina‑Poirier noted that recent labor and inflation data fell short of expectations, suggesting no immediate need for further tightening. Despite the speech prompting markets to price in slightly more tightening, BCA’s macro outlook remains unchanged. The firm expects core PCE inflation to ease as extreme price movements subside, with twelve‑month core PCE running about 88 basis points above core CPI and the trimmed‑mean PCE‑CPI spread at 29 basis points.
Vezina‑Poirier added that a shift to a more bearish view on short‑term rates would require a resurgence in labor‑market strength or inflation surprises. For now, BCA projects the federal funds rate to stay near its current level.
