US inflation not slowing, Fed’s Warsh vows to hit 2% target with rate hikes

JACKSON HOLE, WYOMING, 29 AUGUST 2026 —

Fed’s Warsh Vows to Tighten Policy Until Inflation Hits 2% Target

In his first major speech since taking over the Fed’s helm in May, Warsh emphasized that policymakers must be “confident” that underlying inflation is decisively moving toward the goal before considering any easing. “Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.

That’s our job,” he said in prepared remarks at the Fed’s annual symposium in Jackson Hole.

Warsh acknowledged that recent inflation readings, including July’s softer-than-expected personal consumption expenditures (PCE) and consumer price index (CPI) data, were better than anticipated. However, he cautioned that these improvements do not yet indicate a meaningful shift in inflation’s trajectory. “While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved,” he stated.

The Fed chair underscored that financial conditions remain accommodative and that interest rates remain the central bank’s “predominant tool” for achieving its mandate. With inflation still running above the 2% target, Warsh made clear that price stability is the Fed’s “predominant focus right now.”

His remarks come amid criticism of his communication strategy, which some economists and market participants argue lacks clarity on the near-term economic and monetary policy outlook. Warsh’s speech appeared to address these concerns by offering a more detailed articulation of his views on inflation and the Fed’s policy priorities under his leadership.

“Let’s be equally clear about another aspect of the objective: Price stability is not self-executing, nor is inflation necessarily mean-reverting. It is the Fed’s job to deliver stable prices,” he said. Warsh did not take questions from the audience of central bankers and economists.

The Fed’s July policy meeting left interest rates unchanged, but minutes from the gathering revealed divisions among officials. Several policymakers favored a rate hike, while others indicated that further tightening would be necessary if inflation failed to decline. Warsh faced criticism for his post-meeting press conference, where he did not clearly justify the decision to hold rates steady or signal potential future hikes.

His remarks about the possibility of altering the Fed’s inflation target also drew scrutiny.

Investors reacted by pushing long-term bond yields to near two-decade highs, a sign of waning confidence in the Fed’s commitment to its 2% inflation goal. Since the July decision, new data has pointed to a slowdown in economic activity, which could reduce pressure on the Fed to raise rates.

Retail sales fell in July by the most in over a year, core inflation remained subdued, and employers unexpectedly cut jobs, with hiring in prior months revised lower.

Market expectations for a September rate hike have since moderated. As of Friday morning, federal funds futures implied a 36% chance of an increase in September, down from over 70% at the end of July.

The Fed has now held rates steady for five consecutive meetings following three cuts in late 2025. Warsh’s hawkish stance contrasts with growing signs of economic softening, raising questions about the balance between controlling inflation and supporting growth.

Economists remain divided on whether the Fed will need to raise rates further. Some argue that the recent slowdown in economic activity and softer inflation data could allow the Fed to maintain its current policy stance. Others, however, caution that persistent inflation pressures may necessitate additional tightening.

Warsh’s Jackson Hole speech signals a firm commitment to restoring price stability, even as the economic outlook becomes increasingly uncertain. His emphasis on confidence in inflation’s trajectory suggests that the Fed will proceed cautiously, with further rate hikes remaining a possibility if data does not align with the 2% target.

For Malaysia and the broader Asia-Pacific region, the Fed’s policy trajectory carries significant implications. A prolonged period of higher U.S. interest rates could tighten global financial conditions, impacting capital flows and exchange rates in emerging markets. Malaysia, with its open economy and reliance on trade, may face pressure on the ringgit and imported inflation if the Fed maintains its hawkish stance.

Regional central banks, including Bank Negara Malaysia, will closely monitor the Fed’s actions as they calibrate their own monetary policies. The interplay between U.S. and domestic policy will be critical in shaping economic conditions across the region.

As Warsh’s leadership at the Fed unfolds, markets and policymakers alike will be watching for further signals on the central bank’s inflation-fighting resolve. With inflation still above target and economic data sending mixed signals, the path forward remains uncertain. The Fed’s next moves will hinge on incoming data, with Warsh’s Jackson Hole remarks setting the tone for a cautious but determined approach to restoring price stability.

Related: Kevin Warsh · Jackson Hole, Wyoming