Markets interpreted Federal Reserve Chairman Kevin Warsh’s Wednesday comments as dovish, but a closer reading suggests he may not be as accommodating as widely believed. Warsh declined to celebrate a rare 0.4% decline in consumer prices in June, stating that « five-plus years of inflation above target cannot be cured in nine weeks. » He also emphasized that « where necessary and appropriate, we will not hesitate to act, » language that has historically preceded major policy decisions. Long-term treasury yields rose, the dollar fell and gold gained, but investors may be misreading his intent, as he appears to be waiting for two more inflation reports before the FOMC’s next meeting in September before potentially raising rates.
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