Key Highlights

● Warsh said there is no soft Inflation target and no implicit inflation target.

● He shut down speculation that the Fed might tolerate higher inflation.

● September PCE inflation ran hot and accelerated year over year.

● Gold slid to about $4,025 an ounce as hike bets weighed.

Fed Chair Kevin Warsh used Wednesday's press conference to shut down speculation that the Central Bank might quietly live with higher inflation, a pointed message as prices keep running hot.

The line

Among the most closely parsed remarks from Fed Chair Kevin Warsh's press conference on Wednesday, October 28, was a short, emphatic sentence: "there's no soft inflation target and no implicit inflation target," according to media reports.

The comment addressed a question that has hovered over markets for months. With inflation running above the Fed's long-standing goal, some investors have wondered whether policymakers might quietly accept prices rising a bit faster than their official objective, effectively moving the goalposts without saying so. Warsh's answer was a flat no.

What a "soft" target would mean

A central bank's inflation target is the anchor for its entire policy framework. The Fed's official goal is written into its statements, and Wednesday's statement again referred to ensuring inflation returns to that objective "in a timely manner."

A soft or implicit target would mean treating that goal as flexible in practice, perhaps tolerating persistently higher inflation to avoid squeezing growth. Critics of such an approach argue that it can unanchor expectations: if households and businesses believe the Fed will tolerate higher inflation, they may raise prices and wage demands accordingly, making inflation harder to bring down later.

By ruling out both a soft and an implicit target, Warsh signaled that the Fed's stated goal is the only one that counts.

Why it matters now

The timing was notable. Warsh said Americans are "still dealing with inflation that has been running above the committee's objective," and Thursday's data confirmed the problem. September PCE inflation, the Fed's preferred gauge, ran hot and accelerated year over year, while core PCE edged up. Energy and gasoline prices jumped in the month amid a war-related oil squeeze, according to one report.

Growth is also strong. Third-quarter GDP beat forecasts in its advance estimate, accelerating from the second quarter, with Business Investment soaring. The Fed's statement upgraded its description of activity to "expanding at a strong pace."

Words backed by votes

The Fed held rates steady on Wednesday after raising them in September, but two officials, Governor Lisa Cook and Cleveland Fed President Beth Hammack, dissented in favor of another hike. Warsh himself said, "It's our responsibility to get inflation down."

Taken together, the comments suggest a committee more worried about inflation staying high than about growth slowing. One Wealth advisor said, "Today's data strengthens the case for another rate increase in December."

The market's read

Traders appear to be taking Warsh at his word. Fed funds futures data showed most traders expecting a December hike, though one report said expectations leaned toward a pause, so accounts differed. Gold slid to about $4,025 an ounce on Thursday, according to market data, as hike bets weighed on non-yielding assets, and the same data said the dollar was "supported by expectations of restrictive Fed policy."

Stocks were mixed: the S&P 500 slipped 23.59 points to 7,720.39, while the Russell 2000 jumped 28.71 points to 2,859.22.

What to watch

Friday's third-quarter Employment Cost index will show whether labor costs are adding to price pressures. The Fed's next decision comes December 8 to 9, and Warsh's refusal to bend on the inflation target means a hot ECI reading could strengthen the case for another hike. Oil prices hovering above $100 a barrel remain a wild card.