Jackson Hole analyst roundup: Warsh's speech sends hike chances higher, may put Fed 'at odds' with Treasury

Federal Reserve Chair Kevin Warsh's stance in his speech at the Jackson Hole meeting was unexpectedly hawkish , boosting market expectations for a rate hike next month.

Gold fell and Asian stocks declined on Monday. Traders of fed funds futures see a 60.4% chance of a quarter-point hike in September, up from around 56% on Friday, according to the CME's FedWatch tool .

"Chair Warsh's Jackson Hole address surprised us in its specificity about the economy and outlook and with its lean in a decidedly hawkish direction," Deutsche Bank said. The firm continues to expect the Fed to hike 50 basis points this year, with increases at the September and December Federal Open Market Committee meetings.

"The emphasis on inflation risks, together with Warsh's explicit commitment to achieving price stability and his reluctance to pre-commit to future policy actions, reinforces the elevated risks of policy tightening this year, although it could also be the case of talking without action, UOB said in a note.

"The sensitivity to near-term inflation data is high," Nomura said in a note. "Warsh delivered hawkish remarks at the Jackson Hole economic symposium, emphasizing the importance of the inflation target and implying policy may need to react if disinflation is not occurring with speed."

Warsh's assessment that U.S. economic performance has been robust "was seen as reducing the case for near-term rate cuts," according to James Ooi, market strategist at Tiger Brokers. His "emphasis on the 2% inflation target could be read as an effort to reinforce the Fed's independence and credibility, reassuring markets that monetary policy will not bend to fiscal pressures."

Matthew J. Maley, chief market strategist at Miller Tabak, however, believes that "there remains no empirical basis for the rate hike."

"Warsh appears to be talking up inflation so that he can claim credit for taming it when headline measures inevitably come down," Maley said, adding that the labor market data has been weak while the inflation data has been better than expected since the last FOMC meeting.