Fed Chairman Warsh met his critics halfway, says Steve Liesman

Summary

CNBC's Steve Liesman and former Fed Governor Randall Krozner react to Fed Chair Kevin Warsh's Jackson Hole speech. Liesman argues Warsh met critics halfway by revealing the indicators he watches but not how he will react to them. The speech is interpreted as hawkish, lifting market-implied odds of near-term rate hikes and pushing Treasury yields higher. Krozner highlights Warsh's clarity that the short-term policy rate is the main inflation tool and that money supply measures such as M2 are back in focus.

• Warsh stressed the Fed remains committed to the 2% PCE inflation target.
• Liesman says Warsh supplied the inputs for a reaction function but not explicit policy reactions.
• Warsh flagged indicators including PCE, private domestic final purchases, credit spreads, earnings growth, and inflation breadth.
• Market odds of a September rate hike rose to about 56% after the speech, with December around 86%.
• Two-year and ten-year Treasury yields moved higher.
• Krozner says Warsh made clear the policy rate is the main tool and that monetarism is back.