Fed's Warsh Signals Door Open to Rate Hike as Inflation Lingers Above Target

Federal Reserve chairman Kevin Warsh warned on Friday that the US central bank still has "work to do" if it is not confident that cost-of-living pressures are easing for Americans, using his first speech at the Jackson Hole Economic Policy Symposium in Wyoming to open the door to a possible interest rate increase as soon as the Fed's 15-16 September meeting.

Warsh, who was appointed by President Donald Trump in May, said that while summer inflation readings "looked better than expected," they had not shown a "meaningfully improved" picture. Annual price growth stood at 3.4% in the year to July — well above the Fed's 2% target — while the central bank's other preferred gauge is running at 3.7%, according to the BBC. "The Fed's predominant focus right now should be on prices," Warsh said. "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."

The remarks were read as notably more hawkish than markets had expected. Capital Economics analysts told the BBC the speech delivered a "far clearer — and hawkish — message" that "left the door open to a hike" earlier than previously anticipated, adding: "Hikes are not guaranteed, but Warsh is now at least suggesting he is on board with them if economic growth remains strong and monthly core PCE [Personal Consumption Expenditures] price growth remains a bit too firm." After his speech, CME data showed rates markets pricing in a rising probability of a September rate increase, while interest rates were already left on hold between 3.5% and 3.75% in July for the fifth meeting in a row.

Warsh also used the platform to argue that the post-2008 practice of "forward guidance" — pre-signalling future policy moves — has "overstayed its welcome," saying "oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray." His intervention comes against a backdrop of rising borrowing costs driven by the US-Iran conflict's surge in oil prices, with the BBC reporting that US national debt has now passed $40 trillion (£29.5tn) — a figure that has doubled in a decade under both the Trump and Biden administrations and is rising by roughly $7.8bn a day, according to the Joint Economic Committee. Treasury Secretary Scott Bessent has separately announced an expanded bond buyback programme aimed at lowering those borrowing costs, though the BBC said the market's initial reaction to that plan "proved short lived."

The political stakes are unusually high: Trump, who appointed Warsh after repeatedly attacking his predecessor Jerome Powell over rates, has previously said rate hikes "just keeps the country down," and voters cite affordability as a top concern ahead of November's midterm elections. A September move — or even a credible threat of one — would put the new chair on a collision course with the White House, while a hold would risk being read as policy bending to political pressure.

**Sources:** BBC