Fed Chair Warsh Signals Two More Rate Hikes in Hawkish Jackson Hole Address

Key Takeaways

Table of Contents

Federal Reserve Chair Kevin Warsh delivered forceful remarks at Jackson Hole indicating additional rate increases are coming
Investment bank Barclays has revised its forecast to include 25-basis-point increases in September and December
Warsh stated he would find it difficult to characterize current financial conditions as restrictive
July’s core PCE inflation increased 0.25%, prompting Barclays to elevate its fourth-quarter projection to 3.3%
Governor Beth Hammack reinforced the hawkish stance, advocating for prompt rate hike implementation and projecting year-end inflation near 3%

In a notable policy signal over the weekend, Federal Reserve Chairman Kevin Warsh used his Jackson Hole address to convey a decidedly hawkish stance, strengthening market expectations for at least two additional interest rate increases before year’s end.

🚨 BREAKING:
🇺🇸 Fed Chair Kevin Warsh sounded hawkish at Jackson Hole
– Inflation is still too high
– The 2% target remains the priority
– The economy is still strong
– Rates may not be restrictive enough
– Rate cuts could be harder to come by
Bottom line: September rate-cut… pic.twitter.com/7UuqM0vqZy
— ardizor 🧙‍♂️ (@ardizor) August 28, 2026

In response to the speech, Barclays economists under the leadership of Jonathan Millar have adjusted their projections to anticipate a 25-basis-point rate increase in September, followed by an additional hike in December.

Chairman Warsh’s Core Message

Warsh characterized the economic landscape as having gained strength and noted that employment levels align with full employment conditions. Significantly, he stated it would be challenging to classify prevailing financial conditions as restrictive.

The Fed Chair highlighted robust consumer expenditures, vigorous business capital investments, and accommodative credit availability as evidence that the economy doesn’t require monetary policy relief through lower rates.

Regarding inflation, Warsh adopted an uncompromising position. He emphasized the Federal Reserve’s 2% PCE objective as a “firm, fixed target” and noted that inflation is “neither self-executing nor necessarily mean-reverting.”

He cautioned that monetary policymakers need assurance that inflation is progressing toward the target “clearly and at sufficient speed,” adding that otherwise “we have work to do.”

Warsh based his evaluation on six-month and twelve-month inflation metrics rather than the three-month indicators preferred by Barclays, which currently present a more encouraging picture.

Recent Inflation Figures Intensify Concerns

Core PCE prices advanced 0.25% in July, exceeding Barclays’ projection by approximately 6 basis points. The financial institution subsequently raised its fourth-quarter core PCE estimate by 0.1 percentage point to 3.3%.

Although July’s reading was firm, core PCE inflation did decelerate to a 3.0% three-month annualized rate in July, down from the previous period’s 3.9%.

Updated figures revealed consumer spending expanded at a 3.5% annualized rate during the second quarter, while private domestic final purchases grew at 4.2%, marking the most robust pace since early 2023.

Barclays maintains its outlook for demand moderation in the latter half of the year, observing that consumer spending remained unchanged in July.

Warsh reiterated his skepticism toward conventional forward guidance, characterizing his methodology as “a discipline, not a decision.” Nevertheless, Barclays noted his overall communication “leaves little ambiguity about the direction of travel.”

Governor Hammack Reinforces Hawkish Outlook

Fed Governor Beth Hammack, who supported a rate increase at the most recent policy meeting, mirrored Warsh’s hawkish tone. She advocated for prompt action on rate increases and cautioned that delay could amplify economic challenges.

Hammack projects inflation will conclude the year around 3%, significantly exceeding the 2% objective, and shares the view that existing financial conditions cannot be characterized as restrictive.

The Bureau of Labor Statistics additionally published a preliminary estimate of the annual payroll benchmark revision showing a reduction of 79,000 jobs for the April 2025 to March 2026 period. This revision is more modest than those in recent years.

Following Warsh’s Jackson Hole remarks, financial markets now assess the probability of a September rate hike as approximately even.