Fed Chair Warsh Signals Possible Rate Hikes as Inflation Remains Above Target

Federal Reserve Chair Kevin Warsh told attendees at the Jackson Hole conference on Friday that inflation remains above the Fed’s 2% goal and that the central bank may need to raise rates in the coming months to achieve its target. While recent data show a slight cooling, Warsh said they do not indicate a meaningful improvement in underlying price pressures.

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Warsh said.

The remarks were interpreted by investors as a reaffirmation of the Fed’s focus on price stability. Two-year Treasury yields rose from 4.22% to 4.30% after the speech, reflecting higher expectations for short-term rate hikes, while longer-term yields stayed relatively flat.

Economist Jon Faust, a former adviser to the previous chair, said Warsh succeeded in conveying a willingness to support rate increases if necessary, without providing the detailed forward guidance that his predecessor favored. By contrast, Michael Strain of the American Enterprise Institute noted that Warsh’s comments do not clarify the timing of any policy action.

Warsh also emphasized that current interest rates are not yet constraining economic activity, citing strong business investment in artificial-intelligence equipment and robust consumer spending. He highlighted that more than half of the goods and services tracked by the government have posted price gains of 3% or higher over the past year, a level well above the pre-pandemic average.

The Fed’s next policy meeting is scheduled for Sept. 15-16. Market pricing now suggests roughly a 50-50 chance of a rate increase at that meeting, up from earlier estimates of about one-third. The speech came amid broader political debate, with President Donald Trump continuing to advocate for lower rates and pursuing changes to the Fed’s board composition.