Warsh made the remarks on August 28 during the Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming. His comments represented one of the clearest hawkish signals on U.S. monetary policy since he took over as Fed chair.
“We need to be confident that underlying inflation is moving toward our target clearly and at a sufficient pace,” Warsh said, indicating that otherwise the Federal Reserve may have to take additional action.
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According to the Fed chair, policymakers must currently keep their primary focus on price stability.
Inflation remains well above the central bank’s official target. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, has risen 3.7% over the past 12 months. Measured over the latest six-month period at an annualized rate, inflation stands at approximately 4.1%, compared with the Federal Reserve’s 2% target.
Warsh said that while some inflation indicators improved during the summer, recent data have not yet provided sufficient evidence that the underlying inflation trend has changed decisively.
He also highlighted how broadly price pressures remain spread across the U.S. economy.
The Federal Reserve examined 199 individual components of the PCE index. Over the past year, prices rose by more than 3% for approximately 54% of goods and services included in the index.
For comparison, during the two decades before the pandemic, that share averaged only around 32%. At the height of the post-pandemic inflation surge, it reached roughly 77%.
At the same time, the U.S. labor market remains relatively strong, giving the Federal Reserve greater room to focus on inflation without facing an immediate recession threat.
The U.S. unemployment rate stands at around 4.1% and has remained broadly stable for several years. Initial claims for unemployment benefits also remain close to multi-decade lows.
Warsh said the labor market is broadly consistent with conditions of full employment.
Economic activity also remains resilient.
Real consumer spending increased by more than 2% over the past four quarters, while private domestic final purchases have been growing at an annualized pace of close to 3% since the beginning of the year.
Warsh also questioned whether current financial conditions in the United States could genuinely be described as restrictive.
His comments are particularly important because the Federal Reserve’s benchmark interest rate has remained within the 3.50%-3.75% range since December.
At the Fed’s July meeting, three members of the Federal Open Market Committee had already opposed keeping rates unchanged.
Financial markets interpreted Warsh’s Jackson Hole speech as a signal that the Federal Reserve could return to monetary tightening.
Following his remarks, market expectations for a rate increase at the Fed’s September 15-16 meeting reportedly climbed to around 55%, from approximately 40% before the speech.
Warsh, however, stopped short of explicitly promising a rate hike. He also made clear that he does not intend to provide markets with a predetermined path for future monetary policy.
The Fed chair went further, questioning the extensive use of so-called forward guidance — the practice under which central banks give investors relatively detailed signals about future interest-rate decisions.
According to Warsh, excessive dependence on Fed guidance can create a situation in which markets primarily react to the central bank, while the central bank subsequently relies on market indicators that were themselves shaped by its own communications.
He argued that under normal economic conditions, the Federal Reserve should be more restrained in signaling its future decisions.
The main message from Jackson Hole was therefore clear: the Federal Reserve does not believe the fight against inflation is over.
A resilient labor market and continued consumer spending allow policymakers to concentrate on restoring price stability. If inflation remains significantly above the 2% target, the next major move by the U.S. central bank could ultimately be another rate increase rather than a rate cut.
