Fed chair Kevin Warsh warns of potential interest rate hikes as US inflation reaches 3.7%

Warsh warns on persistent inflation at Jackson Hole

Federal Reserve Chair Kevin Warsh used his address at the Jackson Hole economic symposium in Wyoming on 28 August 2026 to open the door to possible interest rate increases. Speaking in his first address to the symposium since taking office in May, Warsh stated that recent data does not demonstrate substantial improvement in underlying inflation trends. The central bank has kept its benchmark interest rate unchanged since December, but Warsh indicated that credit and loan markets show few signs that current monetary policy is exerting a restrictive effect on the economy. He maintained that short-term interest rates remain the primary tool for fulfilling the Federal Reserve's dual mandate of price stability and maximum employment.

Warsh defined the conditions under which policy adjustments would follow.

We have to be confident that underlying inflation is moving towards our target, clearly and with sufficient speed. Otherwise, we have work to do. That is our job... our mandate... and our duty to keep.

Underlying price pressures and economic factors

The remarks follow a period of elevated price pressures across the United States. Inflation stood at 2.9% in late February when the US and Israel attacked Iran, leading to the closure of the Strait of Hormuz, rising fuel prices, and broader consumer cost increases. Import tariffs imposed by Donald Trump's administration have also contributed to price gains. In July, the personal consumption expenditures price index reached 3.7% year-on-year, and 4.1% over a six-month annualized basis, remaining above the 2.0% target for over five years. Over the past 12 months, 54% of goods and services in the PCE basket recorded annualized price increases exceeding 3%, compared to 49% over the past six months. Incomes adjusted for inflation rose 0.2% compared to a year earlier following several months of decline.

Shift away from explicit forward guidance

In his 16-page speech, Warsh sought to return Federal Reserve communication to a pre-crisis model with less predictable messaging and a reduced central bank footprint. He avoided committing to a fixed timetable ahead of the Federal Open Market Committee meeting scheduled for 15–16 September 2026, stating that medium-term inflation expectations remain well-anchored. Warsh also noted that five internal working groups formed to study long-term questions, including artificial intelligence, will present findings later and will not influence current policy decisions. He stressed that the Fed requires unfiltered market information, without directly addressing recent market interventions by US Treasury Secretary Scott Bessent.

He dismissed the idea that his outline represented formal forward guidance.

You can call it an outline, you can call it a roadmap, just please, do not call it guidance on the future course of monetary policy.

Market context and historical precedent

The prospect of renewed rate hikes represents a contrast with the 2025 symposium, where former chair Jerome Powell hinted at rate cuts. Across Powell's tenure from 2018 to 2025, the S&P 500 rose on speech days in six of eight years, gaining 1.52% in 2025, 1.15% in 2024, 0.67% in 2023, 0.88% in 2021, 0.17% in 2020, and 0.62% in 2018. The index fell 2.59% in 2019 amid trade tensions, and dropped 3.37% in 2022 after Powell warned of economic pain in the inflation fight. Former Philadelphia Fed president Patrick Harker told Reuters that with inflation running above target for six years, policymakers face pressure to follow rhetoric with tangible policy actions.

You cannot keep saying this is our job and then not act. Actions speak much louder than words.