Walsh: Inflation data does not show a significant improvement in the trend, and the Federal Reserve’s current primary focus should be on prices.

Fed Chair Kevin Warsh delivered his first speech at the Jackson Hole symposium, emphasizing that policymakers must confirm core inflation is moving toward the 2% target—otherwise, more work lies ahead. He noted financial conditions cannot be described as restrictive, and inflation data has not shown significant trend improvement, adding the Fed’s current primary focus should be on prices, with forward guidance playing a limited role. Warsh also pointed out the likelihood of the economy achieving substantially higher growth is rising, urging market participants to focus on real economic information rather than outdated or inaccurate data when crafting forward-looking policies. He reiterated the Fed will bring inflation back to its 2% target, calling it a clear, fixed goal. “My standard is that we must be confident underlying inflation is moving toward our target, and the pace must be sufficiently clear and rapid. Otherwise, we still have work to do—that is our duty,” he said. Warsh further stated current financial conditions are not restrictive, with interest rates serving as the Fed’s primary tool for fulfilling its mandate. “Although this summer’s PCE and CPI data came in better than expected, they have not convinced me a meaningful improvement in the underlying inflation trend has occurred,” he noted. “Market prices reflect confidence that we will achieve price stability, and I can assure you the market’s judgment is correct.” Adding that with inflation above 2%, the Fed’s “current top priority should be prices,” Warsh stressed another key point: “Price stability will not automatically be achieved, nor will inflation necessarily return on its own. Delivering price stability is the Fed’s responsibility.”

According to Bitget market data, since Federal Reserve Chair Waller delivered a speech, spot gold and silver have seen sharp short-term pullbacks. Gold has dropped roughly $100 from its peak before a minor rebound, hitting a low of $4,530 per ounce and currently trading at $4,560 per ounce. Silver plunged more than $1 intraday, touching a low of $68.1 per ounce and now standing at $69.0 per ounce.

U.S. short-term Treasury yields rose. In a closely watched speech, Federal Reserve Chair Waller emphasized that the Fed needs to curb consumer price increases, easing some market concerns about its ability to fight inflation. During Waller’s speech, short-term U.S. Treasuries were sold off, while long-term U.S. Treasuries rose. The two-year Treasury yield climbed 5 basis points to 4.28%, and the 30-year yield fell 1 basis point to 5.19%. Both moves indicate that markets expect the Fed may need to raise short-term interest rates. Since Waller held his first press conference in June, bond traders have had doubts about his policy stance. Back then, Waller stressed the need to bring down inflation and took a hawkish stance. Since the global economy reopened from the pandemic in 2021, U.S. inflation has remained above the Fed’s 2% target. But in July, the Fed kept rates unchanged again, and Waller did not reveal whether a rate hike this year is possible. Subsequently, long-term U.S. Treasury yields rose sharply as traders demanded higher returns to compensate for the risk of rising inflation. Waller warned on Friday that inflation has not shown meaningful slowdown, and said policymakers must be confident that inflation is improving, otherwise the central bank “has more work to do.” He also reiterated that policymakers will pull inflation back to the 2% target, stressing that this goal is clear and fixed.

In a speech more hawkish than many market participants had anticipated, Federal Reserve Chair Kevin Warsh cited a range of indicators pointing to strong economic conditions, including solid corporate profits, stable consumer spending, and narrowing credit spreads. Warsh said, “In my view, credit and lending markets show almost no signs that monetary policy is exerting a restrictive impact. Overall, I find it hard to describe current overall financial conditions as restrictive.” This remark lifted Wall Street’s bets on Federal Reserve interest rate hikes.

Fed Chair Waller said Friday that if policymakers fail to be confident inflation is falling back to the 2% target “in a clear and sufficiently rapid manner,” the Federal Reserve “has more work to do.” This signals the Fed may raise interest rates next if price pressures do not improve. Waller made clear he remains committed to the Fed’s longstanding policy path of managing inflation through interest rate adjustments. This has significantly boosted the likelihood of an upcoming Fed rate hike, which could put him at odds with former President Donald Trump, who has long pushed for interest rate cuts. The remarks have largely eliminated the lingering ambiguity. At the end-of-July press conference, Waller declined to elaborate on whether a rate hike is needed to address inflation that has risen sharply this year and stayed above the Fed’s target for more than five consecutive years. (Jin10)

According to market data from BIT (bit.com), Federal Reserve Chair Waller’s Friday speech signaled interest rate hikes, triggering a broad sell-off in U.S. crypto-related stocks. The individual stock declines are as follows: CRCL fell 3.33%, MSTR dropped 4.32%, MARA declined 6.23%, COIN slipped 4.27%, RIOT fell 5.8%, BMNR dropped 2.65%, and SBET declined 4.28%.