According to Nick Timiraos, the so-called 'Fed whisperer,' Fed Chair Warsh's recent remarks soothed some concerns about his inflation-fighting strategy but set up a bigger test three weeks away. If the Fed hikes rates, it could anger the White House weeks before the midterm elections; if it holds steady, it may revive the doubts his speech had put to rest. Warsh's Friday comments pointed to a possible hike next month: he struggled to call current financial conditions restrictive, and better summer inflation data did not convince him the underlying trend is improving. Before Friday, the default had been to hold unless data justified action. Former Fed Vice Chair Kohn said Warsh flipped that logic. 'He has changed the prior assumption, so now they will hike unless the data shows it isn't necessary.' The final decision will depend on developments before the September meeting, especially the August CPI due September 11. Kohn said if data don't warrant action, the Fed shouldn't hike; if they come in strong, it could weaken the case that inflation is heading back to the Fed's 2% target. (WSJ)
Nick Timiraos, known as the Fed whisperer, wrote that Fed Chair Warsh's latest remarks eased some concerns about his approach to fighting inflation but also set the stage for a larger test in three weeks. A rate hike now could rile the White House weeks before the midterm elections, while staying put could reignite doubts his comments had calmed.
Two points in Warsh's Friday speech particularly suggested the Fed could move next month. He found it hard to characterize current financial conditions as restrictive, and he said the better inflation readings over the summer did not convince him that the underlying trend was improving. Before Friday, the Fed's default posture had been to hold steady unless data justified action.
Former Fed Vice Chair Kohn said Warsh flipped that logic. "He has changed the previous assumption," Kohn said, "so now it's: they will hike unless the data says it's not necessary." The final decision, Kohn said, will hinge on what happens before the September meeting, with the August CPI report due September 11 serving as a key input. If the data don't call for action, the Fed should refrain; but if they come in strong, that could undermine the argument that inflation is moving back toward the Fed's 2% target. (WSJ)
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