Federal Reserve Chair Wash adopted a hawkish tone in his speech at Jackson Hole: he acknowledged that inflation remains elevated, made it clear that interest rates remain the primary policy tool, and stated that the Fed would “act as circumstances warrant”; at the same time, citing economic resilience, stable employment, and accommodative financial conditions, he explained that current policy risks are tilted more toward inflation.He also attributed the responsibility for 65 months of inflation exceeding the target to the central bank itself, correcting his ambiguous July statement that “the market should take the lead in raising rates instead of the Fed.” We believe this speech will help restore the Fed’s credibility, and following the remarks, the market has begun to price in a marginal improvement in policy credibility.In the long term, Warsh continues to maintain that AI may reshape the economic and policy framework and is pushing forward with a reform agenda that includes reducing forward guidance. For the market, these remarks have increased the probability of a Fed rate hike this year; however, even so, this is not necessarily purely negative.The market currently does not lack liquidity; what it lacks is policy discipline and predictability. As long as inflation can be brought under control in a timely manner, this will actually benefit the market in the medium term.
Prior to this speech, a major market concern stemmed from Wash’s ambiguous remarks at the July FOMC press conference—particularly his comment about “letting the market raise rates instead of the Fed”—which raised doubts about the Fed’s resolve to curb inflation. These concerns also contributed, to some extent, to the rise in long-term U.S. Treasury yields.For this very reason, the market widely hoped that Wash would offer some “correction” in today’s remarks. As we noted in our previous preview, Wash’s most urgent task is to send a clear signal to the market in order to rebuild the Fed’s credibility.