Kevin Warsh's Hawkish Jackson Hole Remarks Leave Fed Rate Outlook Unchanged, Invesco Says

Federal Reserve Chair Kevin Warsh struck a hawkish tone in his speech at the Jackson Hole global central bank symposium last Friday, but Invesco Global Head of Research Benjamin Jones said the remarks did not change his forecast for rates to stay unchanged for the rest of the year, according to ETNet. Warsh reiterated the Fed's commitment to its 2% inflation target and said inflation has missed that goal for 65 straight months. He also said it is hard to describe overall financial conditions as restrictive and that the Fed should focus on prices for now. Jones said the speech showed Warsh was not feeling any political pressure to cut rates and helped explain why long-dated U.S. Treasury yields briefly eased during the speech. He added that the Fed is gradually removing the signposts markets use to judge policy direction, which could push investors to demand more compensation for risk and lift term premiums. Jones also said the U.S. labor market remains resilient, citing a Bureau of Labor Statistics quarterly benchmark revision that cut job gains for the April 2025 to March 2026 period by 79,000. He said corporate earnings have also been strong, with S&P 500 companies posting one of the best ratios of beats to misses in decades, while Europe and Japan also recorded double-digit earnings growth. On the dollar, Jones said he is unsure it can keep strengthening. He said higher yields and a hawkish Fed usually support the currency, but if long-term yields rise because investors want extra compensation rather than because they are confident in growth, the dollar may not benefit. He added that a rise in the U.S. 10-year Treasury yield to 5% would not necessarily be a major problem, while a sharp drop in yields would be more concerning.