Warsh tells Jackson Hole the Fed has work to do if inflation stays above 2 percent

Federal Reserve Chair Kevin Warsh told the Jackson Hole symposium on Friday that the central bank will have work to do if it cannot be confident that underlying inflation is moving to 2 percent clearly and at sufficient speed.

It was the closest he has come, as chair, to saying a rate rise is in play. He did not name a meeting. He did not need to. The next Federal Open Market Committee gathering is 15 and 16 September.

The Fed's preferred gauge, the personal consumption expenditures price index, rose 3.7 percent over the 12 months to July. The six-month pace is 4.1 percent. Core PCE, which strips food and energy, was 3.3 percent year on year. CPI printed 3.4 percent in July, with a 0.1 percent monthly rise.

Warsh said none of those measures is perfect and that they tell the same story: inflation is running above target. With the labour market near full employment and corporate profits firm, he said the Fed's main focus should be prices. He added that he would be hard pressed to describe broad financial conditions as restrictive.

He also closed a door he had left ajar in July. At that press conference he had mused about other ways to look at inflation. On Friday the prepared text said there should be no misunderstanding: the 2 percent PCE target is firm and fixed. He put the blame for 65 months of elevated inflation on the central bank itself.

Traders moved. CME FedWatch odds of a September hike jumped from about 35 percent before the speech to about 60 percent after it, on the Reuters count. Short-term Treasury yields rose. Equity indexes fell. Capital Economics wrote that the message was clearer and more hawkish than his last press conference and that a hike before its own December baseline was now possible if the next price prints stay firm.

Warsh repeated a theme he has used since taking the chair. He wants a quieter Fed and market signals that are as unfiltered as possible. He did not discuss Treasury Secretary Scott Bessent's recent market operations by name. The line about unfiltered signals was read in the room as a warning against official noise in the bond market.

He spent part of the speech on artificial intelligence as a possible lift to trend growth. That passage sat beside the inflation warning rather than softening it. Stronger productivity would, in time, ease price pressure. It does not change the 3.7 percent print in front of the committee.

The political setting is awkward. President Donald Trump has wanted cuts, not hikes, and spent last year attacking Jerome Powell for holding rates up. He has so far aimed less fire at Warsh and more at the committee as a whole. A September increase would test that restraint.

Housing and agriculture, Warsh said, already show strain. That is the other half of the dual mandate talking back. If the labour market turns down fast, the case for a hike weakens even if PCE stays above 2 percent. The data between now and 15 September, including the next jobs report and the next CPI, will decide whether Friday's sentence becomes a vote.

For now the sentence is the news. The chair of the Federal Reserve told every central banker at Jackson Hole that 2 percent is not a suggestion and that the committee still has work to do.