Federal Reserve Chair Kevin Warsh used his first Jackson Hole speech on Friday, August 28, to signal that interest rates could rise in the coming months, arguing that US inflation has become broad-based and will not drift back to the Fed’s 2% target on its own.
What Warsh said
- Inflation is not just about petrol. Prices have been pushed up by the Iran war and higher fuel costs, but Warsh said the problem runs deeper. More than half of the goods and services the Fed tracks have risen by 3% or more over the past year, compared with roughly a third in the two decades before the pandemic.
- No automatic return to 2%. He argued inflation would not necessarily fall back without action from the central bank.
- A reminder about July. Officials who voted to hold rates at the July 28–29 meeting wanted to “await new information,” he said. Because he also said underlying inflation had not meaningfully improved, many economists read the speech as a hint that a September increase is on the table.
How markets reacted
Investors took the message calmly. Longer-term Treasury yields barely moved, suggesting markets believe the Fed will eventually bring inflation down. The average 30-year fixed mortgage rate was 6.66% that week, according to Freddie Mac, slightly higher than a year earlier.
AI and the economy
Much of the speech focused on artificial intelligence, which Warsh believes could raise productivity and allow faster growth without adding to inflation. “We’ve come to a hinge point in history,” he said. Not everyone in Wyoming was convinced; Harvard economist Kenneth Rogoff said the idea that AI “magically solves everything” was overblown.
Politics in the background
The conference also highlighted pressure on the Fed’s independence. Governor Lisa Cook attended days after her lawyers argued in court that the administration has no legal basis to remove her. Economist Adam Posen said a decision to skip a September hike could raise questions about whether the Fed was avoiding criticism from President Trump, adding that the central bank should never raise rates “to spite elected officials.”
What happens next
The Fed’s next policy meeting is in mid-September. Data on jobs and consumer prices released before then will decide whether Warsh’s warning turns into the first rate rise since 2023.