Warsh delivers hawkish Jackson Hole keynote

The Fed should prioritize above-target inflation while keeping a patient, data-dependent stance because the labor market remains stable and upcoming data could alter the case for rate hikes.

• Kevin Warsh reaffirmed that 2% PCE inflation is a fixed target and said the responsibility for 65 months of elevated inflation rests with the central bank.
• The labor market remains solid: unemployment is 4.1%, near its lowest level in decades, while the Fed’s June projections had placed unemployment at 4.3% at year-end 2026 and 2027.
• July payrolls fell by 23,000, but the decline reflected temporary seasonal hiring distortions and the loss of 57,000 local teaching jobs; Federated Hermes expects employment to improve in September and October.
• Inflation has improved from its highs but remains elevated: headline CPI fell from 9.1% in June 2022 to 3.4% in July 2026, while core PCE declined from 3.5% in May to 3.3% in June and July.
• Expectations for a 25-basis-point hike at the September 16 meeting rose to about 50%, although the November 3 election, falling energy prices and the September 11 inflation release could argue for waiting.

Takeaway: Warsh’s speech strengthens the case for a Fed focused on inflation, but the article expects policymakers to remain patient and data-dependent before raising rates.