Federal Reserve Chair Kevin Warsh stated on Friday that the central bank may need to act if inflation does not continue to move toward its 2% target at a sufficient pace. Delivering his first address as chair at the Fed's annual economic symposium in Jackson Hole, Wyoming, Warsh said that while price growth has moderated, he is not yet convinced that underlying trends have meaningfully improved. He noted that the responsibility for 65 months of elevated inflation rests with the central bank.
Warsh succeeded Jerome Powell as chair on May 22. His remarks come approximately one week after President Donald Trump expressed frustration with current interest rates, calling them "artificially" high and suggesting the Federal Reserve board is influenced by political bias. The President has also renewed efforts to dismiss Fed governor Lisa Cook, an action previously blocked by the Supreme Court.
During his speech, Warsh reported that 54% of goods and services monitored by federal agencies saw price increases of 3% or higher over the past year. This is higher than the 32% average recorded in the two decades before the pandemic. The Federal Reserve's preferred inflation gauge showed an annual rate of 3.7% in July, while the national unemployment rate stood at 4.1%. Warsh reiterated his opposition to "forward guidance"—the practice of detailing future policy moves—arguing it has "overstayed its welcome" and restricts the bank's flexibility.
The potential for higher interest rates affects borrowing costs for households and businesses. The Fed's benchmark range is currently held between 3.5% and 3.75%. Following the speech, expectations for a rate hike at the Sept. 15-16 meeting rose to as high as 57%, according to CME's FedWatch tool. Additionally, yields on 30-year Treasury bonds recently reached a 19-year high, reflecting expanding federal budget deficits and debt issuance by technology companies.
What happens next depends on economic data released before the Federal Open Market Committee (FOMC) meets on Sept. 15-16. While most forecasters expect rates to remain steady in September, Wall Street investors are pricing in a potential increase by December. The Fed board previously voted 9-3 to hold rates steady at their July meeting. Any further action by President Trump to change the composition of the board of governors could also influence future interest rate decisions.