Warsh says inflation isn’t slowing, vows to hit Fed’s 2% target

[JACKSON HOLE, Wyoming] Federal Reserve chairman Kevin Warsh warned inflation isn’t meaningfully slowing and said policymakers must be confident that it is, otherwise the central bank has “work to do.” 

In a sweeping speech, his first since becoming chairman of the central bank in May, Warsh reiterated that policymakers will return inflation to their 2 per cent goal, which he said is a firm and fixed target. 

“Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job,” Warsh said in remarks prepared for the Fed’s annual conference in Jackson Hole, Wyoming on Friday (Aug 28).

Warsh added that financial conditions are not currently restrictive and that interest rates are the Fed’s “predominant tool” for achieving its mandate.

“While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved,” Warsh said. “Market prices show confidence that we will deliver price stability. And I can assure you, they’re right.”

Warsh went on to say that with inflation running above 2 per cent, the Fed’s “predominant focus right now should be on prices.”

Warsh’s highly anticipated remarks came amid criticism of his pared-back communications strategy that economists and market participants said lacks clarity on the near-term outlook for the economy and monetary policy. His remarks appeared to address those concerns, going further than he has before in providing his views on the economy and the Fed’s policy priorities under his leadership.

“Let’s be equally clear about another aspect of the objective: Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed’s job to deliver stable prices,” he said.

Warsh wasn’t expected to take questions from the audience of central bankers and economists.

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Economists are divided over whether the Fed will need to raise interest rates over coming months in a bid to tame inflation that continues to hover above the central bank’s 2 per cent target.

At their July policy meeting, the Fed held interest rates steady. But several officials favoured an interest-rate hike and many indicated that policy tightening would be necessary if inflation didn’t decline, minutes of the gathering showed.

Warsh was roundly criticised for his performance at a post-meeting press conference, where critics say he failed to articulate a rationale for the committee’s decision to keep rates unchanged. He also avoided any suggestion that the committee may have to raise rates in the coming months and suggested the FOMC’s target for inflation could be altered.

Investors reacted by pushing yields on longer-dated bonds to an almost two-decade high, a possible sign of declining confidence in the Fed’s commitment to its 2 per cent inflation target.

The July vote marked the fifth straight time officials have opted to leave rates unchanged following three cuts in late 2025.

Since that decision new data has broadly pointed to a slowing in economic activity, which would take pressure off the Fed to increase rates. Retail sales fell in July by the most in more than a year and core inflation was subdued. At the same time employers unexpectedly cut jobs in July and hiring in the prior two months was revised lower.

Investors have reacted by pulling in their expectations for rate increases this year. Pricing in federal fund futures as of Friday morning implied about a 36 per cent change for an increase in September after topping 70 per cent at the end of July. BLOOMBERG