Warsh Warns Fed May Have More Work to Do on Inflation — Evening Brief – 08.28.26

Federal Reserve Chair Kevin Warsh delivered his first keynote address at the Kansas City Fed’s Jackson Hole Economic Policy Symposium on Friday, expressing concern over persistently elevated inflation while suggesting the central bank may need to raise interest rates if price pressures don’t ease. Warsh said he was “impressed” with the economy’s overall strength but remained troubled by signs that underlying inflation trends have not meaningfully improved.

“While this summer’s [inflation] readings were better than expected, they do not tell me that underlying trends have meaningfully improved,” Warsh said, offering one of his clearer signals yet about the direction of his economic thinking since taking over from former Chair Jerome Powell in May.

Consistent with his approach since assuming the chairmanship, Warsh avoided committing to explicit forward guidance or laying out a clear reaction function that would dictate the Fed’s next policy moves. “We should not indulge a regime in which market participants are looking primarily to the Fed for their next trade,” he said, reinforcing a communication strategy that marks a sharp departure from his predecessors. Powell, for instance, used last year’s Jackson Hole address to hint at coming rate cuts, triggering a sharp market rally.

The speech arrives amid a tense economic backdrop: the Fed’s preferred inflation gauge showed prices rising 3.7% over the past year, the economy shed 23,000 jobs in July, and the 30-year Treasury yield touched a 19-year high last week before retreating after Treasury Secretary Scott Bessent announced plans to double the size of the government’s long-term bond buyback program.

Much of the address focused on longer-run questions, including artificial intelligence, productivity, and financial innovation. Warsh said AI may be crucial to the economy’s future productive capacity, while stressing that task forces studying such structural issues would not affect near-term rate decisions.

While markets have adjusted to his reluctance to signal future moves, many investors had hoped Friday’s address would at least clarify what economic conditions might trigger a policy shift; an expectation his remarks largely left unmet.