Overview
- Kevin Warsh, speaking at Jackson Hole on Friday, said underlying inflation remains too high and warned the Fed may need to raise short-term interest rates to return inflation to its 2% target.
- He reiterated opposition to traditional forward guidance and did not set out a clear reaction function, leaving markets uncertain about the specific data that would trigger a policy move.
- Traders responded by pushing short-term yields higher, with the two-year Treasury rising notably and futures pricing roughly mid‑50s percent odds of a 25 basis point hike at the September FOMC meeting.
- Long-term yields have also climbed because of large federal deficits and heavy corporate borrowing for projects such as AI, an effect the Treasury tried to calm by roughly doubling planned long-dated bond buybacks.
- Attention now turns to upcoming U.S. jobs and inflation reports and the Sept. 15–16 FOMC meeting because those data will shape policy choices and affect borrowing costs for mortgages, businesses, and consumers.