Warsh tells Jackson Hole the Fed has work to do if inflation stays high

Federal Reserve Chair Kevin Warsh told the Jackson Hole symposium on Friday that the central bank will have work to do if officials cannot be confident that underlying inflation is moving toward 2 percent clearly and at sufficient speed. The line is the closest he has come, as chair, to putting a rate increase on the table. Reuters said markets moved the chance of a September hike to about 60 percent from about 40 percent after the text circulated.

Warsh took the chair in May. His July press conference left the hike question untouched. Friday's keynote closed that gap. Inflation, he said, is running above the 2 percent target, so prices should be the Fed's predominant focus. Recent prints have been better than expected. They do not, in his reading, show that underlying trends have improved in a meaningful way. Labor markets, he said, are consistent with full employment. Housing and agriculture show strain. Recent graduates are having trouble. Those caveats did not change the ranking. Prices first.

He also put a number on the past. The responsibility for 65 months of elevated inflation, he said, sits with the central bank. That sentence is aimed at his own institution, not only at his predecessor. It is also aimed at a president who has wanted cuts. A chair who says the next move may be up is choosing the mandate over the White House. Markets heard that and repriced September.

The other half of the speech was about communication. Warsh opened with a hike pun and a trail map and told the room not to call the outline forward guidance. He wants a quieter Fed. Quarterly projections, dot plots and detailed rate paths are, in his view, poor tools for an economy he called a hinge point because of artificial intelligence. Task forces on communications, jobs and productivity, data, inflation and the balance sheet are supposed to invent replacements. Capital Economics called the policy message clearer and more hawkish than the July press conference and said a hike could arrive before the firm's own December baseline if the next price data stay firm.

Warsh said market prices already show confidence that the Fed will deliver price stability, and that the confidence is correct. That is a promise dressed as an observation. If the next CPI prints do not cool, the work he described becomes a vote. The quieter Fed he wants will then have to speak once, with a hike, rather than many times with dots.

Jackson Hole is where chairs set the autumn tone. Powell used it to signal turns. Warsh used it to retire the habit of signalling and, in the same hour, to signal anyway. The contradiction is the story. You cannot both refuse forward guidance and tell markets that 2 percent is the test they should watch this month. They will watch it. The 60 percent price on September is the proof.

The political risk is obvious and does not need a metaphor. Trump has treated the policy rate as a campaign instrument. Warsh has now said the mandate still runs through prices. If September brings a hike, the fight moves from Jackson Hole to the next FOMC statement. If September brings a hold, the 60 percent will unwind and the quieter Fed will have bought a month. Either way the standard is on the record: confidence that underlying inflation is moving to target, clearly and fast enough. Without that confidence, he said, the job is to work.