Kevin Warsh, the new United States Federal Reserve Chairman, told the Jackson Hole gathering that inflation remains elevated at 3.7% and is concerning. He said the Fed has work to do if inflation does not move clearly toward its 2% target. Warsh avoided giving forward guidance but admitted that current interest rates may not be restrictive enough. His cautious tone left investors expecting tighter policy. Market bets on a September rate hike rose to nearly 60% after his remarks. Bond yields moved higher, reflecting expectations of stronger action.
Warsh praised the resilience of the American economy, pointing to strong consumer spending and investment in artificial intelligence. He underlined that the Fed’s predominant focus should be on prices. His refusal to give detailed guidance drew criticism from some analysts but he argued that flexibility is essential. Political pressure from President Trump for lower rates adds to the challenge of maintaining independence. Warsh insisted that the Fed must act based on data, not politics.
Equities remained steady but volatility could rise if inflation data stays firm. Bond markets already show concern about restrictive policy. A hawkish Fed could strengthen the dollar and put pressure on emerging markets. Investors worldwide now await the next inflation print and the September policy meeting.