Federal Reserve Chair Kevin Warsh used his first major Jackson Hole speech to make one point clear: the inflation fight is not finished.
Warsh said recent data have not convinced him that underlying price pressures are falling fast enough toward the Fed’s 2% target, opening the door to further tightening if progress stalls. Markets reacted quickly, with the probability of a September rate increase climbing to above 50%, from roughly 35% before the speech.
The shift matters because the Fed has held its benchmark rate at 3.50%-3.75%, while July PCE inflation remained at 3.7% year over year. More than half of the goods and services tracked by the government have still recorded price increases of at least 3% over the past year.
Treasury Yields and Dollar Move Higher
Short-term bonds absorbed most of the immediate pressure.
The 2-year Treasury yield rose 6.6 basis points to around 4.29%, its highest level in a month. The 10-year yield moved to roughly 4.68%, while the U.S. Dollar Index gained about 0.4% to 99.55 as traders priced in a greater chance of another Fed hike.
That reverses some of the softer expectations that had built before Jackson Hole. Coinpaper’s pre-speech rate outlook put the September hike probability near 35%.
Warsh Wants a “Quieter Fed”
Warsh also reinforced his preference for less forward guidance.
Rather than signaling rate decisions well in advance, he wants markets to respond more directly to incoming economic data. That approach differs from the communication style used by previous Fed chairs and has contributed to uncertainty around the central bank’s reaction function.
At the same time, Warsh described the economy as relatively resilient. Consumer spending and business investment remain firm, while AI investment could eventually boost productivity and potential growth. Those conditions may give the Fed more room to keep policy restrictive if inflation stays elevated.
For markets, the combination of higher yields and a stronger dollar can pressure rate-sensitive assets. Coinpaper’s DXY guide explains why dollar strength matters for Bitcoin, gold and commodities, while real yields remain another key transmission channel for tighter Fed policy.
The next major test is the September 15-16 FOMC meeting. Warsh did not promise a hike, but his Jackson Hole message made clear that holding rates steady is no longer the market’s only base case.