Kevin Warsh opens door to Fed rate hikes as US inflation persists at 3.7%

Shift away from forward guidance

Federal Reserve Chair Kevin Warsh addressed the annual Jackson Hole economic symposium in Wyoming on 28 August 2026, using his first address at the gathering to announce a departure from explicit interest rate forecasting. US central bank leaders had relied on forward guidance since the 2008 financial crisis to anchor expectations, but Warsh argued that detailed forward commitments carry more risks than benefits. He stated that premature commitments restrict the Federal Reserve's policy flexibility and create feedback loops where the central bank reacts to market moves that it initiated itself.

Too much transparency about internal deliberations and too strong commitments to future decisions can mislead markets, businesses, and households.

Warsh argued that central banks function more effectively when they avoid forward communication, stating that a quieter central bank is preferable. Rather than guiding markets with verbal previews, the Fed will focus on incoming economic data and develop new models and robust operating rules.

Persistent inflation and the price stability mandate

Warsh directed the Fed's policy attention firmly toward price stability, pointing out that inflation in the United States has remained above the 2% objective for 65 consecutive months. While headline inflation fell 0.1 percentage points in July to 3.4%, the personal consumption expenditures price index remained at 3.7% year-on-year in both June and July. The six-month annualized rate for the same index stood at 4.1%. Warsh noted that the ongoing war in Iran and resulting energy market disruptions have contributed to persistent price pressures, which fall most heavily on wage earners without substantial assets.

Price pressures also remain broad across consumer categories. Across the 199 individual components that make up the personal consumption expenditures basket, 54% recorded price increases exceeding 3% over the prior twelve months. That breadth is lower than the post-pandemic peak of roughly 77%, but it exceeds the average recorded over the two preceding decades.

The responsibility for 65 months of persistent high inflation lies clearly with the central bank. And that is where it belongs.

Labor conditions and September policy decisions

Evaluating the Federal Reserve's statutory dual mandate, Warsh assessed that the US labor market currently meets the standard for full employment, while credit conditions across the financial system remain relatively loose and accessible. Because financial conditions are not restrictive and employment is solid, Warsh emphasized that the central bank must focus primarily on controlling prices.

The inflation target of two percent is a firm, immovable value.

US President Donald Trump appointed the 56-year-old Warsh to lead the central bank in May 2026, after repeatedly criticising former Fed chair Jerome Powell and demanding lower borrowing costs. At the Federal Open Market Committee's July meeting, policymakers held interest rates steady, although three of the twelve committee members voted for an immediate rate increase.

Following Warsh's Jackson Hole remarks, pricing in interest rate futures markets lifted the probability of a rate hike at the mid-September meeting to approximately 48%. During the speech, US Treasury yields climbed while stock indices fluctuated. LBBW analyst Elmar Völker observed that Warsh showed readiness to tighten policy if inflation trends do not decelerate quickly toward the 2% goal.