China International Capital Co said Fed Chair KEVIN WARSH adopted a hawkish tone
at Jackson Hole, acknowledging inf remains elevated, reaffirming interest rates
as the primary policy tool and saying he will 'act as needed.' He pointed to
economic resilience, stable employment and loose financial conditions to justify
a policy bias toward fighting inf, attributed 65 months of inf overshoot to the
central bank, and corrected July’s ambiguous suggestion that markets should
'replace the Fed' in raising rates. CICC said the speech helps rebuild Fed
credibility and markets have begun to price a marginal restoration of policy
credibility. Warsh continues to argue that AI could reshape the economy and
policy framework and is pushing reforms including reduced forward guidance.
Market implication: the remarks raise the probability of a Fed hike this year
but are not unambiguously negative — liquidity is not scarce now; what markets
lack is policy discipline and predictability, and timely containment of inf
would be supportive over the medium term.
