Warsh's "hawkish" remarks convinced Barclays that the Fed would raise rates twice this year
Prior to Warsh's speech in Jackson Hole, bank strategists expected the Fed to keep rates unchanged through the end of the year
Analysts at Barclays expect the U.S. Federal Reserve to raise interest rates by 25 basis points in September and again in December. Photo: Shutterstock
Barclays analysts have revised their expectations regarding the future policy of the U.S. Federal Reserve (Fed). Following Friday’s remarks by Fed Chairman Kevin Warsh—which, according to Barclays, signaled a more “hawkish” stance by the Fed— the bank’s strategists now expect the U.S. central bank to raise interest rates by 25 basis points in September—and by the same amount again in December, Reuters reports. Previously, Barclays had expected the Fed to keep rates unchanged through the end of the year.
Details
Barclays stated that, despite Warsh’s continued reluctance to signal to the market regarding future monetary policy, his speech at Jackson Hole was “notably hawkish” and contained indirect arguments in favor of further tightening. Analysts added that while they still expect monthly inflation figures to be “much softer” than the long-term figures Warsh highlighted during his symposium speech, “the adverse base effect will hinder progress on these metrics through the end of the year.”
Deutsche Bank strategists agreed with Barclays analysts as early as Friday: “The speech by [Fed] Chair Warsh at Jackson Hole surprised us with its specificity regarding the economy and forecasts, as well as its decidedly ‘hawkish’ tone,” they wrote, commenting on the Fed chair’s speech. At the same time, the bank noted that it expects: the U.S. central bank to raise rates by 50 basis points this year, with increases coming at the September and December meetings of the Federal Open Market Committee (FOMC), CNBC reported.
What Warsh Talked About in Jackson Hole
On Friday in Jackson Hole, Warsh stated that Fed officials “have a lot of work ahead of them” if they are not confident that “core inflation is moving toward the [Fed’s] 2% target — clearly and at a sufficient pace.” Warsh also noted that, in his assessment, inflation is too high, financial conditions are not restrictive, and the labor market is at full employment, thereby making it clear that price stability remains the central bank’s priority, according to Reuters.
The markets interpreted these statements as a signal of a future tightening of the Fed’s policy: immediately after Warsh’s remarks, expectations of an interest rate hike at the Fed’s next meeting in September jumped to 60%, even though just the day before that estimate had been only 35%.
This article was AI-translated and verified by a human editor
