Krishna Guha, Evercore ISI Vice Chairman, characterized the Federal Reserve under Kevin Warsh as an "inflation first Fed right now" following Warsh's remarks at the Jackson Hole symposium. Guha emphasized that Warsh's speech indicated a clear focus on bringing inflation down to the 2% target, suggesting that the Fed would not hesitate to raise interest rates if price pressures persist.
According to Guha, the implied probability of a rate hike in September increased significantly after Warsh's speech, from around 35% to over 50%. This shift reflects the market's interpretation of Warsh's hawkish stance, where he stressed that financial conditions are not yet restrictive enough and that the Fed "has work to do" if inflation doesn't move towards the objective at a sufficient speed.
Guha further noted that for the Fed to *not* raise rates in September, there would need to be exceptionally good news on the inflation front. This perspective is shared by other analysts, including those from Barclays and Societe Generale, who now anticipate a quarter-point rate hike in September, potentially followed by another in December. Warsh himself reiterated the commitment to the 2% inflation target, using the Personal Consumption Expenditures (PCE) price index as the fixed measure, and highlighted that interest rates are the Fed's primary tool for achieving its mandate.
