Federal Reserve Chair Kevin Warsh used his first Jackson Hole address to signal that additional rate increases may be necessary if inflation does not move decisively toward the Fed’s 2% target, while arguing that current borrowing costs do not appear to be restraining the economy.
By yourNEWS Media Newsroom
Federal Reserve Chair Kevin Warsh delivered his clearest warning yet Friday that interest rates may need to rise again, saying inflation remains unacceptably high despite recent signs of moderation and emphasizing that policymakers still have “work to do” if underlying price pressures fail to ease.
Speaking at the Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming, Warsh said recent inflation readings had improved somewhat but had not convinced him that the broader inflation trend had changed enough.
“They do not tell me that underlying trends have meaningfully improved,” Warsh said in prepared remarks.
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” he added. “Otherwise, we have work to do.”
The comments are significant because they suggest Warsh is becoming increasingly open to additional monetary tightening only three months after taking over leadership of the central bank.
Warsh replaced former Federal Reserve Chair Jerome Powell on May 22 and has since faced close scrutiny from investors attempting to determine how aggressively he intends to respond to inflation that remains above the Fed’s target.
The central bank’s preferred inflation measure stood at 3.7% in July, well above its 2% objective.
Inflation eased during June and July after rising sharply in May, when rapidly increasing gasoline prices contributed to stronger price pressures.
Warsh made clear Friday that the recent improvement alone is not enough to reassure him.
His speech also challenged the idea that current interest rates are substantially restricting economic growth.
Warsh pointed to continued strength in consumer spending and heavy business investment, particularly in artificial intelligence equipment and infrastructure, as evidence that borrowing costs may not yet be exerting significant downward pressure on demand.
That assessment matters because central banks generally raise interest rates when they want to slow borrowing, spending and investment enough to reduce inflation.
If economic activity remains robust despite existing rates, policymakers could conclude that additional tightening is necessary to bring price growth under control.
Warsh stopped short of indicating whether the Fed will raise rates at its next meeting Sept. 15-16.
Most economists currently expect policymakers to leave borrowing costs unchanged at that meeting.
Financial markets, however, increasingly anticipate at least one additional rate hike before the end of the year.
Futures pricing tracked by CME FedWatch indicates that Wall Street investors are betting the Federal Reserve will increase rates by December.
The uncertainty surrounding that outlook has been amplified by Warsh’s reluctance to tell markets in advance what the Fed expects to do.
He has repeatedly criticized the central bank’s use of “forward guidance,” the practice of signaling likely future policy decisions before they are made.
Warsh argues that such guidance can limit the Fed’s flexibility by effectively committing officials to a particular course even when economic conditions later change.
Some economists have urged him to provide more information about his broader monetary-policy framework without making explicit promises about individual meetings.
Warsh nevertheless reiterated Friday that he remains skeptical of both detailed forward guidance and efforts to lay out an overly rigid approach to interest-rate decisions.
His remarks come at a sensitive moment for financial markets.
Long-term Treasury yields have risen steadily in recent weeks as investors contend with several pressures, including large federal deficits and substantial borrowing by technology companies financing the rapid construction of artificial intelligence infrastructure.
The yield on the 30-year Treasury bond reached its highest level in 19 years last week.
That increase prompted an unusual intervention by Treasury Secretary Scott Bessent, who moved to buy back bonds in an effort to reduce yields.
Bond markets have also been watching Warsh closely because uncertainty over the Fed’s inflation strategy can influence expectations for future borrowing costs.
If investors become more confident that the central bank has a coherent path for bringing inflation under control, longer-term rates could ease somewhat.
Warsh’s challenge is complicated by political pressure from President Donald Trump, who has continued calling for lower interest rates.
Trump appointed Warsh and has continued to defend him since he took office, but the president has criticized other Federal Reserve officials who have supported maintaining or increasing borrowing costs.
The administration has also renewed efforts to reshape the Fed’s governing board.
Trump has again sought to remove Federal Reserve Gov. Lisa Cook, who was appointed by former President Joe Biden.
The president attempted to dismiss Cook last year, but the Supreme Court temporarily blocked the move.
If Cook were ultimately removed and replaced by a Trump nominee, the president would be able to appoint a majority of the seven-member Federal Reserve Board.
The political debate surrounding the central bank adds another layer of scrutiny to Warsh’s effort to establish his own leadership style and convince financial markets that monetary policy will remain focused on inflation and broader economic conditions.
Jackson Hole has historically served as an important platform for Fed chairs to define those priorities.
When Powell delivered his first speech at the conference as chairman in 2018, he focused on limitations surrounding central-banking concepts such as the “neutral” interest rate — the theoretical level at which rates neither stimulate nor restrict economic growth — and maximum employment.
Four years later, with inflation having surged to 9.1% during the pandemic-era price spike, Powell used Jackson Hole to signal that the Fed would continue aggressively raising interest rates.
He also warned at the time that the effort would bring “pain” to households and businesses.
Warsh’s first appearance as chair arrives under different circumstances.
Inflation is substantially below its pandemic-era peak but remains almost twice the Federal Reserve’s 2% target under the central bank’s preferred measure.
At the same time, economic demand remains strong enough for Warsh to question whether current monetary policy is meaningfully restrictive.
That combination places the Fed in a difficult position.
Raising rates could increase borrowing costs for mortgages, credit cards, businesses and government debt, potentially slowing the economy.
Leaving rates unchanged for too long, however, could allow elevated inflation to become more persistent.
Cutting rates, as Trump has repeatedly advocated, could provide additional economic stimulus at a time when Warsh is publicly warning that inflation has not yet improved enough.
Friday’s speech did not resolve which option the Fed will choose in September.
Instead, Warsh established a threshold for future decisions: policymakers need convincing evidence that underlying inflation is moving toward 2% at a sufficiently rapid pace.
If that evidence does not emerge, his remarks suggest additional rate increases remain firmly under consideration.
“Otherwise,” Warsh said, “we have work to do.”
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