August 31, 2026
The Jackson Hole speech cleared up several ambiguities about the conduct of US monetary policy. The 2% target is reaffirmed, short-term rates are confirmed as the main instrument, but no decision is pre-announced for September. The result: more credibility, not more predictability.
Price data remain far from the objective. The PCE index is up 3.7% year on year and 4.1% at a six-month annualised rate, while the official target is set at 2%. The gap is therefore not marginal: it represents nearly twice the objective.
Excluding food and energy, inflation comes out at 3.3% year on year. The monthly increase in July was more moderate, at 0.2%. A single month is not enough to establish a trend, however, especially when the six-month annualised measure remains above the year-on-year figure.
The most notable point concerns the breadth of price increases. 54% of PCE components are rising by more than 3%, against an average of 32% before the pandemic. This measure matters for a central bank: it makes it possible to distinguish a shock concentrated in a few items from a generalised dynamic.
When price increases are limited to a few categories — energy, transport, food — they can resolve themselves. When they affect more than half of the basket, they are often the sign of a more entrenched mechanism, liable to settle into expectations. Such a level of breadth therefore complicates the idea of a simple spontaneous return to target.
At the same time, real consumption has stagnated. This combination — high prices and sluggish demand — is one of the most delicate trade-offs for a central bank, since the two sides of its mandate then pull in opposite directions.
Kevin Warsh's speech brought clarification on three frequently debated points.
The target, measured by the PCE, is described as “firm and fixed”. This point is not trivial. The debate on a possible increase in the inflation target comes up regularly in academic and market discussions. Explicitly reaffirming the level and the reference index closes that door.
Monetary policy has several levers: policy rates, balance-sheet size, forward communication. The message is clear: it is short-term rates that steer the monetary stance. The other tools take a back seat.
This is perhaps the most structuring point. Several elements are highlighted: investment is growing, credit remains accessible, yield spreads are tight and unemployment remains limited to 4.1%.
“Financial conditions” refers to the set of parameters that determine how easily businesses and households can access financing: the cost of credit, bond risk premia, the level of markets. If these conditions remain loose, the economy is not really being held back, whatever the nominal level of policy rates. The reasoning then leads to the view that monetary policy still has room to act.
With a resilient economy, a labour market close to full employment and inflation still broadly spread, the stated priority therefore remains price stability.
Despite these clarifications, no calendar commitment was made. No hike announced for September. No precise trigger threshold. No rate path communicated.
The commitment concerns a discipline, not a decision. This approach assumes a less talkative Fed, refusing to pre-announce its moves in order to preserve its freedom of action.
This choice marks a shift from the practice of forward guidance, which consists of explicitly steering expectations about the future path of rates. That practice offers visibility, but it also locks the central bank into a commitment that is hard to walk back without a cost to credibility. Giving it up restores flexibility, at the price of less short-term readability.
The movement observed in rates sums up investors' reading: short-term rates up, long-term rates stable.
This flattening of the curve is consistent with two simultaneous expectations. On the one hand, more tightening in the short term — which is what short-term rates, sensitive to the central bank's immediate decisions, reflect. On the other, the conviction that the Fed will prevent inflation from taking hold durably — which is what long-term rates, more influenced by medium- and long-term inflation expectations, reflect.
The implied probability of a hike in September thus rose from around 35% to 60%. The speech also reduced the perceived risk of the 2% target being called into question.
The distinction is essential. Visibility improves on the doctrine: objective, instrument, reading of financial conditions. It does not improve on the timetable.
A hike in September is now credible. It is not a given. The next inflation and employment releases will weigh directly on the meeting of 15 and 16 September.
This less prescriptive communication should make markets more data-dependent. In such a configuration, each statistical release carries greater weight, which may sustain volatility at the short end of the curve. For an investor, this argues for reading underlying trends rather than reacting to each isolated figure.
This is not investment advice.
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