Warsh signals Fed's focus on inflation, hints at possible September rate hike

August 28, 2026 at 08:33 PM2 min

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Federal Reserve Chair Kevin Warsh said inflation remains too high and the central bank's predominant focus should be on prices. He noted the 12-month PCE inflation rate stands at 3.7% and the six-month rate at 4.1%, above the Fed's 2% target. Former Fed Vice Chair Alan Blinder interpreted Warsh's remarks as forward guidance suggesting a possible September rate hike.

Key Facts

Warsh said the Fed's preferred inflation measure, the 12-month PCE price index, stands at 3.7%, while the six-month change is 4.1%.
Former Fed Vice Chair Alan Blinder said Warsh's remarks sounded like forward guidance and suggested a September rate hike is on the table.
Odds of a September rate hike rose to nearly 60% following Warsh's speech, up from 35% on Thursday.
Warsh said the labor market is broadly consistent with full employment, but price stability is the more concerning side of the Fed's mandate.

Inflation Concerns

Warsh emphasized that inflation remains above the Fed's 2% target, with the 12-month PCE at 3.7% and the six-month rate at 4.1%. He stated that the Fed's predominant focus right now should be on prices, while the employment side of the mandate is doing well. Warsh noted that this summer's inflation readings were better than expected but 'do not tell me that underlying trends have meaningfully improved.'

Forward Guidance Debate

Former Fed Vice Chair Alan Blinder interpreted Warsh's comments as forward guidance, saying Warsh sounded like someone who thought interest rates should go up. Blinder predicted a quarter-point rate hike in September, followed by a pause. Traders raised the odds of a September hike to nearly 60% after the speech, from 35% the previous day.

Policy Framework

Warsh criticized the Fed's use of forward guidance, saying it should be limited and circumscribed in normal times. He argued that oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray. Warsh said the responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank.