Warsh adopts a hawkish stance, Goldman Sachs remains skeptical of a September rate hike, and JPMorgan Chase says it "still depends on August's non-farm payrolls and CPI."

Warsh adopts a hawkish stance, Goldman Sachs remains skeptical of a September rate hike, and JPMorgan Chase says it "still depends on August's non-farm payrolls and CPI."

Federal Reserve Chairman Kevin Warsh made his first appearance as chairman at Jackson Hole, sending a more hawkish signal than at the July FOMC press conference : inflation is "worrying," the Fed's "primary focus should be on prices," and if the underlying inflation trend does not fall back to the target at a "sufficient pace," "we still have work to do."

Following the speech, the 2-year Treasury yield jumped by about 7 basis points —one of the biggest market reactions to Jackson Hole's speeches in recent years. At the same time, the probability of a September rate hike climbed from about 30% before the speech to over 50% .

However, neither of Wall Street's two major banks followed the market's pricing shift. JPMorgan Chase maintained its baseline forecast of a December rate hike , with economist Michael Feroli stating that the "more important news" determining the outcome of the September meeting would be the upcoming August non-farm payrolls and CPI reports. Goldman Sachs expects both core CPI and core PCE to rise by around 0.2% month-on-month in August, and based on this trajectory, the FOMC will remain on hold.

Inflation is the “primary concern”: the underlying trend has not shown substantial improvement.

Walsh devoted a significant portion of his speech to inflation. He acknowledged that this summer's PCE and CPI readings were "better than expected," but then added, "This doesn't tell me that the underlying trend has substantially improved."

He presented data to support his argument: Over the past 12 months, the proportion of goods and services in the PCE basket with price increases exceeding 3% reached 54% , lower than the post-pandemic peak of approximately 77%, but still far higher than the 32% level of the two decades before the pandemic. JPMorgan Chase's Feroli believes that compared to the trimmed-mean PCE previously cited by Walsh, this indicator is "less opportunistic"—the trimmed mean has returned to the normal range, but the proportion exceeding 3% is still far higher than pre-financial crisis levels . Goldman Sachs points out that this calculation reflects the tariff effect to some extent.

Walsh acknowledged that wage growth was "moderate," but stated that wages "have long failed to be a reliable indicator of future inflation"—implying that moderate wage data does not constitute strong evidence of an improved inflation outlook.

Correcting two controversial statements in July

In his speech, Warsh proactively corrected two statements from the July FOMC press conference that had caused market unease.

Previously, he had questioned the future of the 2% inflation target, but this time he clearly stated: "There should be no misunderstanding—the Fed's 2% price stability target, as measured by the PCE price index, is a steadfast and fixed goal." Similarly, while his previous stance on policy tool selection was ambiguous, this time he confirmed that "short-term interest rates are the primary tool for achieving the dual mandate." JPMorgan Chase commented that these two clarifications together send a clear signal—higher inflation will be addressed with a higher federal funds rate.

In his speech, Warsh also outlined seven principles for guiding policy, reiterated his focus on the monetary aggregate, questioned the role of forward guidance in normal times, and concluded by calling for a "quieter, more purposeful Fed." JPMorgan Chase noted that this was the longest speech by Fed Chair Jackson Hole since 2018.

The economy is "impressive," and financial conditions are "not tight."

Warsh devoted about a quarter of his speech to discussing the economic situation in a rather traditional tone. JPMorgan Chase noted that this section "sounded like a traditional technocratic speech by a Federal Reserve chairman," discussing indicators such as private domestic final purchases.

Warsh's assessment of the economy is "impressive; the economy appears to have strengthened": real consumer spending "remains healthy despite the shock," and business capital expenditure is "growing rapidly"—more than half of this year's capital expenditure growth can be attributed to AI-related construction . He cites the fact that private domestic final purchases have grown by nearly 3% this year, although Goldman Sachs notes that this indicator is currently distorted by upward pressure on imports of AI-related technology products.

Regarding the labor market, Warsh considered it "quite stable" and "consistent with full employment," with the unemployment rate "still low by historical standards." His overall assessment was that "it's difficult to describe current broad financial conditions as contractionary" —a significant shift from his stance at the June press conference, when he deferred the same question to the working group.

Goldman Sachs and JPMorgan Chase: September rate hike is still not the baseline scenario

In his speech, Warsh revealed that at the July FOMC meeting, "most of my colleagues and I believed that it would be wiser to wait for new information during the interval between meetings before deciding whether it is necessary to adjust interest rate policy."

JPMorgan Chase maintains its forecast of a December rate hike. Feroli acknowledges that given the increasing number of hawkish signals from Fed officials, acting ahead of schedule "is not unreasonable," but the key variables are the August employment and CPI data.

Goldman Sachs' assessment is even clearer: a September rate hike is only possible if August's CPI and PPI data exceed expectations . The bank expects core inflation to rise by around 0.2% month-on-month in August, and the FOMC will most likely remain on hold.

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