Warsh faces inflation test in first Jackson Hole speech

Federal Reserve Chair Kevin Warsh heads into his first major Jackson Hole speech Friday under pressure to explain how he plans to tame stubborn inflation without offering the kind of policy roadmap he has so far resisted.

The annual gathering of economists and policymakers in Wyoming has often served as a stage for Fed chairs to send broad signals about the economy and monetary policy. Warsh, who took charge of the central bank in May, said last month that he wanted to use the setting to “frame the big questions” facing the Fed.

Those questions have become more urgent. Inflation remains well above the Fed’s 2% target, with NBC News reporting a July rate of 3.4%. NPR, citing the Fed’s preferred inflation measure, reported that prices rose 3.7% in the 12 months ending in July, down from 4.1% in May but still too high for the central bank’s comfort.

Warsh and his colleagues voted last month to hold interest rates steady. Markets broadly expect the Fed to do the same at its September policy meeting, according to NBC News, while NPR reported investors see about a one-in-three chance of a rate increase.

Some Fed officials want action sooner. Cleveland Fed President Beth Hammack, who voted to raise rates in July but was outvoted, said Thursday that inflation has stayed elevated for too long.

“I believe it’s time to act. I think we’ve seen inflation above target for too long,” Hammack said on the sidelines of the conference.

Hammack said workers at a manufacturing plant in Erie, Pennsylvania, recently told her they did not expect inflation to fall over the next year. That kind of thinking, she said, “makes me really nervous.” She added: “Is this inflationary mindset starting to set in?”

Tariffs imposed by President Donald Trump are also feeding concern about consumer prices, Hammack said. There is a “concern that prices are going to continue to go up,” she said.

Investors are also looking for clarity after Warsh’s July news conference, where he promised to curb inflation but gave few details. “I’d like to hear him be a bit more communicative,” Kathy Bostjancic, chief economist at Nationwide, told NPR. “We’re not talking forward guidance. Just some understanding of how he views the inflation dynamics right now.”

Warsh has signaled that he prefers businesses and investors to focus on economic data rather than hints from Washington. Last month, he said in Jackson Hole he wanted to examine “what’s really happening with productivity,” demographics and the global economy.

“I look at it like a blank piece of paper right now,” Warsh said of the speech. “I haven’t made a decision whether it’s going to be a big-picture speech or more of a set-up of all the action that we’re going to have between September and December.”

Bond markets have added to the stakes. NBC News reported that yields have risen to levels not seen in more than a decade, and Evercore analysts wrote that Warsh’s July press conference “failed to articulate a coherent strategy for ensuring inflation returns to target and hit his credibility.”

The Treasury Department last week announced plans to buy back at least $4 billion in long-dated government debt, a move NBC News said appeared aimed at lowering long-term rates. Yields briefly fell, then rose again. Peter Boockvar, chief investment officer of One Point BFG Wealth Partners, said markets remain in control.

“The market is in the driver’s seat,” Boockvar said.

Warsh is also watching the effects of artificial intelligence. NPR reported that he is optimistic AI could help restrain inflation over time, though Deutsche Bank economist Matthew Luzzetti said it is pushing some costs higher now.

“In the near term at least, there’s clear evidence that AI is an inflationary force,” Luzzetti said. “But there’s hope that over the medium term, if we look several years out, it will begin to be a disinflationary force.”