Fed took comfort in inflation expectations staying anchored, says Fmr. Kansas City Fed President

Summary

Former Kansas City Fed President Esther George discussed Fed communication, persistent inflation, the federal deficit, and bond market pressure. She argued that until the deficit is addressed, longer-term Treasury yields are likely to remain under upward pressure. She also warned that inflation expectations have drifted higher even though the Fed has relied on them being anchored.

• Markets are sorting through Fed communication, persistent inflation, and geopolitical risks.
• George says federal deficits are unsustainable and there is no apparent plan to address them.
• Until deficits are addressed, longer-term Treasury yields likely face upward pressure.
• She sees Jackson Hole as an opportunity for the Fed to clarify its inflation thinking.
• Inflation expectations have drifted higher and pose credibility risk.
• She sees no obvious signs of lost Fed credibility but would not test it.
• The unsettled war has implications for oil.