Warsh Says the Fed May Not Be Done Fighting Inflation -- Update

By Nick Timiraos

JACKSON HOLE, Wyo.- Federal Reserve Chairman Kevin Warsh signaled the central bank may not be done fighting inflation, saying financing conditions didn't look restrictive to him and that better price readings recently hadn't convinced him the trend was improving.

"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," he said in first speech as Fed chairman, a highly anticipated debut at the Kansas City Fed's annual symposium in Wyoming.

Warsh stopped short of saying whether he would support raising rates when the Fed meets next month and offered no path for policy, in keeping with his approach to how the central bank should communicate less about coming moves. "I stand here today committed to a discipline, not to a decision," he said.

He described an economy showing few signs of restraint from the Fed's current rate of around 3.6%. "Credit and loan markets are showing few signs of policy restraint," he said. Despite some signs of strain in housing and agriculture, "on balance, I would be hard pressed to describe broad financial conditions as restrictive."

The remarks provided the fullest account Warsh has given of how he reads an economy that has split the central bank since he took over this spring. Three officials voted last month to raise rates, and others have signaled they are open to joining them.

The disagreement turns on whether inflation has stayed above the Fed's 2% target because of one-off shocks such as tariffs and the Iran war, or because demand is running ahead of supply and letting businesses make price increases stick.

Warsh said that he believed last month that "the wiser course was to await new information," particularly given "possible developments in supply chains, investment flows, and geopolitics-before deciding whether a change in interest rate policy was advisable."

Softer inflation readings in June and July had eased pressure on the Fed to raise rates in September, with market-implied probabilities of a hike falling below 40% earlier this month.

This summer's readings "were better than expected," Warsh said, but "they do not tell me that underlying trends have meaningfully improved." He highlighted the breadth of price increases: About half the items in the Fed's preferred inflation basket are rising faster than 3%, which is well below postpandemic highs but still above roughly one-third in the two decades before the pandemic.

While Warsh made several arguments advanced in recent months by the hawks that could prepare the ground for an eventual rate increase, he also provided a standard flexible enough to justify holding steady if he becomes convinced underlying inflation is finally moving down.

The Jackson Hole symposium has taken on outsize importance in financial markets because Fed chairs have often used the keynote address as a staging ground for shifts in the central bank's broader strategy. But Warsh's first speech was even more anticipated because of murmurs of concern in financial markets after he deliberately declined to explain at the Fed's last meeting how its current stance would deliver on bold promises he made in his first weeks on the job.

Many investors and economists share Warsh's skepticism of the Fed's habit of previewing its next move. Fewer follow him to where he took it during his first three months as chair. In declining to spell out how the Fed reads the economy, the central bank would withhold not just the decision but the reasoning behind it, which is a framework that lets outsiders check the central bank's work.

Warsh said guidance in normal times "risks creating ambiguity in the name of clarity," and that quasi-commitments on rates "inhibit our own freedom to make the right calls when it's time to decide."

Still, Warsh provided a more detailed reading of the economy than he has at earlier public engagements. "Today I am impressed by the overall performance of the economy, which appears to have strengthened," he said, citing how well it has held up to shocks. He pointed to credit spreads near the low end of their historical range and business investment growing at its fastest pace since 2021.

The bond market took a moment to sort it out. Yields on the benchmark 10-year Treasury note initially fell, then reversed to roughly unchanged. The 2-year Treasury yield, which tracks expectations for the Fed's next moves, rose sharply, while the 30-year bond yield declined. It was the opposite of the bond market's reaction following his press conference in July that fueled concerns about Warsh's approach. Write to Nick Timiraos at Nick.Timiraos@wsj.com

(END) Dow Jones Newswires

August 28, 2026 10:41 ET (14:41 GMT)