Federal Reserve Chair Kevin Warsh said on Friday that the central bank has "work to do" if inflation remains above its 2% target, signaling potential policy tightening at upcoming meetings.
Speaking at the Fed’s annual economic symposium in Jackson Hole, Wyoming, Warsh emphasized that the Fed must be confident that underlying inflation is sustainably moving toward target before pausing its restrictive stance. "We must be confident that underlying inflation is clearly and sufficiently moving toward our target. Otherwise, we have work to do," he stated in prepared remarks.
Recent data suggests limited progress toward the Fed’s inflation goal. The Personal Consumption Expenditures (PCE) price index held at 3.7% on an annualized basis through July, with roughly half of the items in the PCE basket rising at annual rates above 3%. Warsh noted that recent trends "do not indicate that underlying trends have improved significantly."
The Fed’s short-term policy rate has remained unchanged in the 3.50% to 3.75% range since December, but market expectations point to a high probability of tightening by December. CME Group’s FedWatch tool indicated a one-in-three chance of a rate hike at the September 15-16 meeting, with odds exceeding 90% for a move by year-end.
Warsh also highlighted structural challenges facing monetary policy, announcing the formation of five working groups to study long-term issues. While these groups will not influence near-term decisions, he described the initiative as an "intellectual investment" to prepare for future policy challenges. "These efforts will come later and will not influence the decisions we make in the current monetary policy environment," he said.
The Fed chair’s remarks follow three dissents at the July meeting against maintaining the current policy rate, underscoring growing divisions within the Federal Open Market Committee. Warsh’s 16-page prepared speech reiterated the Fed’s commitment to ensuring inflation expectations remain anchored, a core mandate in its inflation-fighting framework.
The Jackson Hole symposium, hosted by the Kansas City Fed, serves as a key platform for central bankers to outline policy outlooks amid evolving economic conditions.
