TIMIRAOS wrote KEVIN WARSH's remarks eased some market concerns about the Fed's
anti-inflation strategy but set up a tougher test in three weeks. Two points in
Warsh's speech point toward a possible September hike: he stopped short of
calling current financial conditions restrictive, and summer's improvement in
inflation did not convince him the trend is improving. Before Friday the Fed's
default had been to hold unless data warranted action; former Fed vice chair
Cohn said Warsh has flipped that logic — the default is now to raise unless
incoming data show no need. Cohn said the decision will hinge on conditions
before the September meeting, notably August CPI due Sept. 11; stronger data
would weaken the case that inflation is returning to the Fed's 2% target and
could prompt a hike, while softer data would argue against raising. A September
could hike anger the White House if it comes weeks before the midterms; standing
pat could reawaken the doubts Warsh sought to calm.
