Federal Reserve Chairman Warsh addresses persistent inflation in Jackson Hole keynote

Kevin Warsh just delivered the speech that markets had been nervously waiting for. In his first Jackson Hole keynote as Federal Reserve Chairman, Warsh put inflation front and center, citing a headline PCE rate of 3.7% year-over-year for July and making it abundantly clear that the Fed’s 2% target isn’t a suggestion. Markets heard the message. Post-speech, the probability of a rate hike at the upcoming September FOMC meeting jumped to roughly 50-60%, a sharp increase from where odds had been sitting before Warsh took the stage. The numbers behind the hawkish tone The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, came in at 3.7% year-over-year for July. That alone is nearly double the central bank’s target. But the six-month annualized change paints an even less comfortable picture at 4.1%, suggesting price pressures may actually be accelerating rather than cooling. Perhaps the most striking data point: over 54% of PCE components increased at an annualized rate above 3% over the past year. Warsh described the Fed’s 2% PCE target as a “firm, fixed target,” language that leaves very little room for the kind of creative reinterpretation some market...