In closely watched speech, Warsh signals Fed may need to raise rates

JACKSON HOLE, Wyoming — Federal Reserve Chair Kevin Warsh on Friday laid the groundwork for a possible interest rate hike in the coming months, arguing that the economy is strong and the labor market is at full employment, while inflation is concerning.

“Inflation is running above our 2 percent target. So the Fed’s predominant focus right now should be on prices,” Warsh said in remarks at the Fed’s annual conference in Grand Teton National Park. While inflation numbers have recently been better than expected, “they do not tell me that underlying trends have meaningfully improved.”

“Market prices show confidence that we will deliver price stability,” he added. “And I can assure you, they’re right.”

Warsh, who took the helm of the central bank in May, has been under pressure to take a firmer stance on the Fed’s readiness to fight inflation. His words could help allay worries in financial markets, where global investors have been pushing up longer-term rates on concern that elevated consumer prices might prove more persistent. Treasury Secretary Scott Bessent over the past couple of weeks has made extraordinary moves to stem the run-up in bond yields, which also reflects doubts that the U.S. will rein in deficits and that massive levels of borrowing by artificial intelligence companies will put further upward pressure on rates.

Any move to raise borrowing costs in September will likely invoke the frustration of President Donald Trump, although he has spoken warmly of his new central bank chief and might give him more leeway than Warsh’s predecessor, Jerome Powell. Powell, who remains a Fed board member, was a frequent target of Trump’s anger for resisting rate cuts.

But Warsh also had plenty of good things to say about Trump’s economy.

“For my part, today I am impressed by the overall performance of the economy, which appears to have strengthened,” he said. “One indicator of strength is how well an economy holds up to shocks. On that score, both Main Street and Wall Street have been remarkably resilient.”

“Certain sectors—like housing and agriculture—are showing strains,” he said, but added that rates overall did not seem to be dragging down economic activity.

And while he said recent graduates might be having some trouble finding work, which is an area of concern, “labor markets are consistent with full employment” — meaning generally that those who want a job can find one.

The speech, his first official one in his new role, diverges from his early practice of providing almost no opinion on the state of the U.S. economy, although he still did not employ typical central banker speak in signaling when an interest rate hike might come.

Instead, he said a “good majority” of his colleagues, as well as him, judged in July that it was better to have several more weeks of data “before deciding whether a change in interest rate policy was advisable.”

“And we expressed our joint readiness to act as circumstances might require,” he said.