Warsh Says the Fight Against Inflation Isn’t Over

SPEAKER_1 (0:00)

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Sabrina Siddiqui (0:34)

Kevin Warsh just gave his first big speech as Fed chair and traders walked away bedding on a rate hike. Plus, how corporate America is quietly bracing for a possible Democratic comeback in Washington.

Annie Linskey (0:46)

Companies have been very eager to show how close they are to Trump, and that has painted a target on them.

Sabrina Siddiqui (0:52)

And Chevron is closing in on a major deal to expand its footprint in Venezuela. It's Friday, August 28th. I'm Sabrina Siddiqui for The Wall Street Journal, filling in for Alex Osala. This is the PM Edition of What's News, the top headlines and business stories that move the world today.

Federal Reserve Chairman Kevin Warsh delivered his first speech as chairman today, where he signaled that the central bank may not be done fighting inflation. He spoke at Jackson Hole, at the Kansas City Fed's annual symposium in Wyoming. The Journal's chief economics correspondent, Nick Timiraos, was there.

Nick Timiraos (1:28)

Warsh said that he would be hard pressed to call financial conditions restrictive. That means the Fed's rate might not be doing enough to influence the economy, which is what gets inflation back to 2%.

Warsh set a standard. Inflation has to be moving toward 2% clearly, and at sufficient speed, to use his words, or he said the Fed would have more work to do.

Kevin Warsh (1:53)

Inflation is running above our 2% target. So the Fed's predominant focus right now should be on prices.

Sabrina Siddiqui (2:03)

Nick says that investors are taking Warsh's comments as a sign that the Fed's more likely to raise rates, although Warsh didn't say that himself.

Nick Timiraos (2:11)

Warsh made a version of the Hawks' argument without saying that he would necessarily join them. And the bond market reacted that way. You saw short-term yields go up.

So Warsh gave everyone a more detailed picture of how he reads the economy, even if he didn't draw a map about what he plans to do about it.

Kevin Warsh (2:33)

I stand here today committed to a discipline, not a decision.

Sabrina Siddiqui (2:38)

Traders have raised the odds of a rate increase next month to around 60% from 35% yesterday. And, in other economic news, the labor market's not quite as strong as we thought. The Bureau of Labor Statistics said today that the US likely added 79,000 fewer jobs than previously reported, over the 12 months that ended in March. This isn't the final word, though. The government's still updating the jobs figures based on more complete tax data, and the official revision isn't until next year.

Warsh's comments caused some choppy trading. The S&P rose at first, then turned lower, and all three indexes ended the day slightly lower. The Nasdaq was the biggest loser, closing down half a percent. Meanwhile, the dollar rose, moving higher with bond yields, and gold prices fell more than 3%.

One stock that jumped today was GAP. Its shares rose 13% after the company's latest earnings report. Same-store sales at the GAP division rose 10%.

The company's earnings beat Wall Street estimates, and GAP raised its profit outlook slightly for the year. At the company's largest division by sales, Old Navy, same-store sales fell 4%, and GAP says it's working on addressing problems there. The Journal is exclusively reporting that Chevron and some other US energy companies are nearing deals to invest billions of dollars in Venezuela's oil fields. Chevron is already operating in the country, and it's close to adding two heavy oil fields, and Halliburton is in talks to bring in its equipment. Executives from a few companies are expected to sign production deals in Caracas next week, and Energy Secretary Chris Wright is supposed to be in Venezuela then too. You heard on this morning's show about how the Trump administration is in talks with Venezuela for a stake in the country's oil fields. Collin Eaton, the Wall Street Journal's Global Energy reporter, says the oil company's talks are a different set of negotiations.

Collin Eaton (4:37)

The Trump administration's negotiations with Venezuela for these 17 oil fields, which would give them a stake in 90 billion barrels of oil reserves in Venezuela, those are on a completely separate track than all the negotiations that US oil companies like Chevron are conducting. Even though those two deal making processes are totally separate, this US deal to try to get a direct stake in Venezuelan oil production could serve as geopolitical insurance policy for the oil companies looking to get into Venezuela. Because Venezuela has had a long history of nationalizing assets, and companies are cautious about going in for those reasons. And this could be seen, in theory, as a way to sort of cool people's nerves.