Federal Reserve Chairman Kevin Warsh told the Fed's Jackson Hole symposium that the central bank must act unless inflation moves toward its 2% target with confidence. Rate futures raised the odds of a September rate hike after the speech, building on a July meeting where three policymakers already favored tightening.
Warsh's Clearest Signal Yet
Speaking Friday in Wyoming, Warsh delivered his most detailed comments yet on where the Fed stands in returning inflation to target after more than five years above it. He avoided a timeline for any move and said the remarks should not be read as forward guidance, a practice he argued had overstayed its welcome since the 2008 financial crisis.
Even so, Warsh acknowledged that short-term interest rates remain the Fed's predominant tool for meeting its dual mandate. In the keynote address at Jackson Hole, according to Reuters, he said: "The Fed's predominant focus right now should be on prices".
Inflation Progress Called Modest
Warsh said progress on inflation over the past two years has been modest, with the Fed's preferred PCE price index running at 3.7% annually as of July. About half of the items in that basket are rising faster than 3% a year, a smaller share than during the pandemic-era surge but still above pre-pandemic norms.
BBC reported separately that consumer prices rose 3.4% in the year to July, above the Fed's 2% target. Warsh said current data do not show that underlying trends have meaningfully improved, though he described inflation expectations as anchored for now.
Markets Move on Hawkish Tone
The speech pushed rate futures to price about a 55% chance of a hike at the Fed's September 15-16 meeting, up from roughly 40% beforehand. That shift followed a July meeting where three policymakers dissented in favor of tightening rather than holding rates steady.
Policymakers have kept the Fed's rate in the 3.50%-3.75% range since December, and Warsh noted that credit and loan markets currently show few signs of policy restraint. Trump appointed Warsh in May, and Reuters reports that key unemployment, job growth and consumer inflation data for August will be released early next month.
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