NEW YORK: Wall Street stocks dipped while the dollar rallied Friday (Aug 28) after Federal Reserve chief Kevin Warsh flagged fighting high inflation as a priority in a speech received as more hawkish than expected.
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Warsh said in a highly anticipated speech.
Short-term US Treasury bonds, which reflect monetary policy expectations, saw yields spike in anticipation of a higher Fed rate after the speech in Jackson Hole, Wyoming.
Futures markets also raised the odds of a rate hike in September, while the dollar jumped against the euro and other major currencies.
At 3.7 per cent, inflation in the world’s biggest economy is nearly double the Fed’s target of two per cent, and investors worry that high energy prices from the Iran war could persist as winter approaches.
“On the price-stability side of our mandate, the numbers are more concerning,” Warsh said, even as he said he was “impressed” with US economic performance, with employment “doing well”.
Wall Street stocks remained in positive territory for a stretch after the speech, but later moved downward. The S&P 500 finished down 0.3 per cent.
“Kevin Warsh’s speech at the Jackson Hole symposium delivered a far clearer – and hawkish – message than his last press conference appearance” in July, said Stephen Brown, an economist at Capital Economics.
“Hikes are not guaranteed, but Warsh is now at least suggesting he is on board with them if economic growth remains strong” and inflation remains elevated, he said.
