Federal Reserve Chairman Kevin Warsh emphasized the central bank's determination to return inflation to its 2% target during his speech at the Jackson Hole Economic Policy Symposium.
"Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job," Warsh said in prepared remarks.
The Fed chair noted that while recent price index reports showed some improvement, they didn't demonstrate substantial progress toward sustainable inflation reduction. "Market prices show confidence that we will deliver price stability. And I can assure you, they're right," he added.
Following Warsh's remarks, traders boosted bets on imminent policy tightening, with fed funds futures now reflecting nearly even odds of a September move compared to one-in-three previously. The yield curve showed mixed movements, with two-year notes gaining ground while 30-year bonds saw minimal change.
Warsh stated that financial conditions aren't currently restrictive and that interest rates remain the Fed's "predominant tool" for achieving its mandate. However, he avoided signaling support for a specific rate decision in September, saying: "I stand here today committed to a discipline, not to a decision."
Warsh's speech came amid criticism of his communication strategy, which some economists and market participants said lacked clarity on the near-term economic and policy outlook. His latest remarks appeared to address these concerns by providing clearer guidance on the Fed's priorities.
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"Let's be equally clear about another aspect of the objective: Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed's job to deliver stable prices," Warsh said.
During their most recent meeting, policymakers maintained rates despite some internal disagreement about whether to act immediately. The chair had drawn scrutiny for his vague explanations during the subsequent press briefing.
Analysts continue debating whether additional rate increases will be necessary to curb persistently elevated inflation. While Warsh's comments didn't settle the question, they reinforced the central bank's focus on restoring price stability.
The Fed chairman wasn't taking audience questions after his address to the gathering of financial leaders and academics. This marked his first significant policy speech since assuming leadership three months ago.
Market reaction suggested traders viewed Warsh's tone as more aggressive, with near-term borrowing costs rising alongside higher rate expectations. The tepid response in long-dated securities indicated lingering doubts about how tighter policy might affect economic growth.
Investors now await key data releases and the September FOMC meeting for more definitive policy signals. As Warsh stated: "We have work to do" to achieve the Fed's inflation target.