Fed Chair Warsh Signals Possible Rate Hikes as Inflation Stays Stubbornly High
Fed Chair Kevin Warsh says inflation remains too high, hinting at possible rate hikes despite recent cooling in price data.
Federal Reserve Chair Kevin Warsh used his first major public address at the Jackson Hole Economic Symposium on Friday to deliver a clear message: inflation is still too high, and the central bank may need to act further, potentially including raising interest rates.
While acknowledging that recent U.S. data shows some cooling in price pressures, Warsh cautioned that these reports do not indicate a meaningful improvement in underlying trends. "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed," he said. "Otherwise, we have work to do."
The remarks were closely watched by Wall Street, which had been questioning whether the new Fed chair was committed enough to fighting inflation. His predecessor, Jerome Powell, was replaced by Warsh in late May. The speech appeared to reassure markets that price stability remains the Fed's top priority.
Warsh stopped short of signaling an imminent rate hike, but he dismissed the notion that inflation is no longer a threat. Data continues to show price growth stubbornly above the Fed's 2% target.
Market reaction was measured. U.S. stocks held steady, but bond markets showed shifting expectations. The yield on the two-year Treasury, which tracks Fed policy expectations, rose from 4.22% to 4.30%, indicating investors anticipate higher short-term rates. Longer-term yields on 10-year and 30-year Treasuries were mostly flat, suggesting markets do not expect a prolonged period of tight policy.
The stakes were high for Warsh, whose previous public comments in late July created confusion about his stance on inflation and which measures of it the Fed is monitoring. He has consistently declined to offer "forward guidance" on upcoming policy moves, arguing that such commitments limit the Fed's flexibility.
In his speech, Warsh reiterated that view but also suggested that current interest rates are not restrictive enough to cool economic activity. He pointed to robust business investment in AI equipment and infrastructure, as well as strong consumer spending, as signs that borrowing costs may need to rise further.
The Fed's next policy meeting is scheduled for September 15-16. According to futures pricing tracked by CME FedWatch, investors now see roughly a coin-flip chance of a rate hike at that meeting, up from about one-third before Warsh's speech.