Thursday’s remarks did little to resolve the market’s core uncertainty heading into Friday, namely whether the Fed leans toward a September hike or continues to hold. Hammack’s (and more here) explicit call to act sits at odds with Schmid’s reluctance to commit and Goolsbee’s more balanced, watchful tone, while Collins added a note of relative reassurance by attributing part of the hot headline print to technical factors rather than genuine demand pressure. Futures markets continued to lean against a September move while pricing strong odds of a hike by year end, a split that mirrors the divide among the officials themselves. With Warsh known for withholding forward guidance, this scattershot of pre-speech commentary may end up carrying more signal for traders than the keynote itself.
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With Chair Warsh due to speak Friday,
- Preview: Warsh’s silence on rates leaves Fed and markets guessing before Jackson Hole
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four of his colleagues used Thursday to stake out very different positions on how urgently the Fed needs to act on inflation.
Summary:
- Cleveland Fed’s Beth Hammack was the most hawkish, repeating her call for a rate rise and arguing financial conditions show no sign of being restrictive after more than five years of above-target inflation.
- Kansas City Fed’s Jeffrey Schmid called inflation “stubborn and sticky” but questioned whether the current policy rate is restrictive at all, and said he needs more clarity on demand-side drivers before backing a hike.
- Chicago Fed’s Austan Goolsbee said his biggest short-term fear is that inflation is not under control, citing energy costs from the Iran conflict and shifting tariffs as added pressure, though he noted the recent three-month trend “doesn’t look terrible.”
- Boston Fed’s Susan Collins called the latest headline inflation print “mixed”, saying much of the surprise came from technical factors like portfolio management fees rather than genuine demand, and that she still expects inflation to ease on its own.
- All four spoke a day after July’s PCE data showed headline inflation at 3.7% year on year and core at 3.3%, both unchanged from June.
- Chair Kevin Warsh delivers his first Jackson Hole keynote as Fed Chair on Friday, with markets watching closely given his preference for withholding explicit forward guidance.
Federal Reserve officials arriving in Jackson Hole, Wyoming this week used the eve of Chair Kevin Warsh’s keynote address to stake out sharply different reads on how urgently the central bank needs to respond to persistent inflation, offering traders a preview of the internal debate Warsh will face when he takes the podium on Friday.
Cleveland Fed President Beth Hammack was the most direct in her call to action. Speaking to media on the sidelines of the conference, she repeated her argument that inflation has now run above the Fed’s 2% target for more than five years and that current financial conditions show no meaningful sign of restriction. “I don’t want to prejudge anything. But I believe now is the time to act,” she said. Hammack was one of three regional presidents who dissented in favour of an immediate hike at the Fed’s July meeting, alongside Minneapolis Fed’s Neel Kashkari and Dallas Fed’s Lorie Logan, a three way hawkish split not seen since 2016.
Kansas City Fed President Jeffrey Schmid struck a more cautious note. He described inflation as “still stubborn and sticky” and said the central bank needs to keep finding ways to bring it back to target, but stopped short of endorsing an immediate move. Schmid raised a more technical concern, questioning whether the Fed’s current policy rate of 3.50% to 3.75% is doing any real work to restrain the economy. “I don’t know what we’re restricting currently with the rate policy that we’re at today,” he said, adding that he wants a clearer picture of the demand side forces driving both growth and inflation before taking a position on a September hike.
Chicago Fed President Austan Goolsbee offered a more anxious but ultimately balanced assessment. Speaking on the Rapid Response podcast, he said his greatest short term worry remains that inflation has not actually been brought under control, warning that “everybody should be on edge” given how difficult a renewed inflationary impulse would be to reverse. Goolsbee pointed to elevated energy prices stemming from the Iran conflict and the ongoing back and forth over tariffs as fresh burdens on household budgets, layering additional pressure onto an economy already dealing with affordability concerns. Even so, he noted the recent three month inflation trend “doesn’t look terrible” and left the door open to rate cuts eventually, provided inflation continues moving back toward target.
Boston Fed President Susan Collins provided the most reassuring interpretation of the same underlying data. In an interview with Reuters, she described the latest inflation report as “mixed”, acknowledging the headline figure came in a little stronger than she had expected but arguing that much of that strength reflected technical quirks rather than genuine demand pressure. She specifically cited a rise in portfolio management fees, which move with stock valuations rather than supply and demand conditions, as an example of a distortion inflating the headline number without signalling a broader problem. Once “unpacked”, she said, the report contained “some promising signs”, including subdued monthly inflation in categories where prices are set by market competition. Collins said she still expects inflation to ease on its own, though she remains ready to support tightening if that outlook fails to materialise.
All four officials were reacting to Wednesday’s release of the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, which showed headline inflation running at 3.7% over the twelve months through July and core inflation, which excludes food and energy, at 3.3%. Both readings matched the levels seen in June. The data has proven difficult for markets to interpret cleanly, with some economists arguing the resilience of the print strengthens the case for a hike as soon as September, while others see it as merely keeping the door open to tightening at some point later in the year. Futures markets currently lean against a move at the September meeting while assigning much stronger odds to a hike by year end.
The scattered commentary sets an unusually noisy backdrop for Warsh’s Friday keynote, his first as Fed Chair at the annual symposium. Warsh has developed a reputation since taking office for withholding explicit forward guidance, having stripped language about future policy direction from recent FOMC statements and generally declined to elaborate on the Committee’s reaction function during press conferences. That reticence means Thursday’s round of regional president commentary, spanning from Hammack’s explicit call to act to Collins’ more measured reassurance, may end up telling markets more about where the committee actually stands than anything Warsh says himself.
This article was written by Eamonn Sheridan at investinglive.com.