Warsh Hints at September Rate Hike in Jackson Hole Speech
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- Kevin Warsh opened the door to a September rate hike, saying inflation evidence hasn't 'meaningfully improved' since the July 28-29 meeting where he voted to hold — a stance Peterson Institute president Adam Posen warned could erode Warsh's credibility if he doesn't follow through.
- Warsh described inflation as broad and stubborn, noting that more than half of tracked goods and services have seen prices rise 3% or more year-over-year — well above the roughly one-third that saw such increases in the two decades before the pandemic.
- The 10-year Treasury yield barely moved after Warsh's remarks, suggesting investors are confident the Fed will eventually bring inflation down, even as the average 30-year fixed mortgage rate sits at 6.66% according to Freddie Mac.
- Warsh cast AI as a potential engine of higher growth without fueling inflation, calling the moment 'a hinge point in history,' while Harvard's Kenneth Rogoff countered at a luncheon that the idea AI will 'magically solve everything is a bit overblown' and could actually push rates higher.
- Fed independence concerns have cooled since last year's conference, with governor Lisa Cook attending days after her lawyers argued in court that the Trump administration has no legal basis to remove her.
- The government's next price report, due days before the September Fed meeting, will play an outsize role in determining whether the central bank raises rates, according to the AP.
Why it matters: A September hike would land directly on American households already paying 6.66% on a 30-year mortgage, and Warsh has now put himself in a credibility trap — if inflation doesn't cool by the next price report, economists like Posen expect markets to demand action, and any failure to deliver would undermine the Fed chair's authority before he has fully settled into the role.
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