Federal Reserve Chair Kevin Warsh used his remarks at the Fed's annual Jackson Hole economic symposium on August 28 to warn that inflation in the United States remains sticky, a comment that shifted how investors are pricing the central bank's next move.
After those remarks, the CME FedWatch tool, which tracks trader expectations for Fed policy, showed the odds of a quarter point rate increase in September, to a range of 3.75% to 4%, climbing as high as 68%. That is a notable shift in mood: for much of the past two years, markets and commentators mostly debated when the Fed would cut rates, not raise them. The change reflects an unusual mix of persistent inflation and resilient growth. The Fed's preferred inflation gauge, the personal consumption expenditures price index, rose 0.2% in July and held at an annual rate of 3.7%, unchanged from June and still well above the Fed's 2% target. At the same time, the Federal Reserve Bank of Atlanta's GDPNow model has put third quarter growth momentum at 4.6%, a strong number that gives policymakers less reason to worry about slowing the economy too much.
At its July meeting, the Fed's policy setting committee held its benchmark rate at 3.5% to 3.75%, but three of its members dissented in favor of an immediate increase, an unusually large split that shows real disagreement inside the committee about how to handle the current inflation picture.
Not everyone agrees a hike is the right call. Stephen Miran, who served as a Fed governor from September 2025 to May 2026, has argued the current bout of inflation is mostly a temporary effect of oil price swings tied to the conflict involving Iran, and that the Fed should stay on hold rather than raise rates, drawing a comparison to the transitory inflation debate of a few years ago.
Two more inflation reports and any further developments in the Middle East are expected to weigh heavily on the Fed's September decision.
Why is the Fed considering a rate hike instead of a cut?
Inflation has stayed elevated near 3.7% on the Fed's preferred measure, well above its 2% target, while growth has remained strong, giving policymakers room to consider tightening rather than easing.
Who is Kevin Warsh?
He is the current chair of the Federal Reserve, and used his first Jackson Hole keynote as chair to flag persistent inflation risk.