· Event impact
Fed Chair Warsh Signals Inflation Persistence; Rate Hike Odds Volatile
Transmission path
Hawkish central bank rhetoric despite cooling headline data is driving volatility in short-term rate expectations.
Market mechanism
Hawkish central bank rhetoric despite cooling headline data is driving volatility in short-term rate expectations.
Extended read
Fed Chair Kevin Warsh's July 14 testimony emphasized that the inflation fight is not over, despite a 0.4% monthly decline in headline CPI. This disconnect has caused significant swings in Fed Funds futures pricing. Initially, the cooling CPI data led markets to price in only a 16% chance of a July hike, down from 42%. However, subsequent interpretation of Warsh's comments has seen those odds jump back up as the Fed appears wary of declaring victory.
Exposed assets
VOOG
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