On Friday, 28 August, Kevin Warsh delivered his first Jackson Hole address as Chairman of the Federal Reserve. He took office on 22 May 2026, and the speech marked, in his own words, his 100th day.
He did not say in it that he intends to raise rates. By the close of that trading day the two-year Treasury yield had risen 14 basis points.
The gap between those two sentences is the piece.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
The Three Numbers the Speech Rests On
Warsh gave his assessment of the economy, and it rests on three figures.
| PCE inflation, 12-month change | 3.7% |
| PCE inflation, six-month change | 4.1% |
| Unemployment rate | 4.1% |
The second row is the point, and it is easy to miss. The six-month measure is running faster than the twelve-month one. When the shorter window prints above the longer one, that is not inflation coming down slowly - it is a shorter measurement window revealing acceleration rather than deceleration.
Warsh put it carefully: the summer readings, he said, were better than expected, but "they do not tell me that underlying trends have meaningfully improved".
On employment he was far more definite. Unemployment, he said, is low by historical standards and has not changed much for a couple of years, and jobless claims on a four-week average are near their lowest level in decades. His conclusion: the labour market is consistent with full employment.
And when one side of the dual mandate is judged achieved, one side is left to work on.
The Measure Warsh Built So As Not to Lean on a Single Number
The more interesting part of his analysis is not the rate of inflation but its breadth. He broke the PCE index into its 199 components and asked how many of them are rising quickly.
| Components rising more than 3% | |
|---|---|
| Over the past 12 months | 54% |
| Over the past six months, annualised | 49% |
| At the post-pandemic peak | about 77% |
| In the two decades before the pandemic | 32% |
The reason he bothers with this is that it answers a familiar objection. One can always argue that a headline index is being dragged by a single unusual category. A breadth measure blocks that argument: when more than half the basket is rising above 3%, that is no longer a category, it is a level.
And it is the comparison with the pre-pandemic 32% that gives the number meaning. 54% is not a figure anyone can read without an anchor.
The Word That Was Not Said
Here is the gap I opened with.
In the entire speech the word hike appears three times. In all three it refers to walking in the mountains. Warsh opens with a joke about the two kinds of trails around Jackson Hole: those of former Vice Chairman Don Kohn, which he sums up in two words - "I survived" - and those of Ben Bernanke, which are a leisurely stroll. His advice to the audience before setting out is to ask themselves whether this is a Kohn day or a Bernanke day.
He also gave no guidance. He described his own outline this way: "You can call it an outline . . . you can call it a trail map . . . just don't call it forward guidance."
And he framed the conclusion in a single sentence: "I stand here today committed to a discipline, not to a decision."
So what was said. Two things.
The first is a standard: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."
The second, delivered in the section on the economy, is in my view what moved the market. Warsh reviewed credit spreads near the low end of their historical range, strong issuance volumes, and the July senior loan officer survey showing easier standards on commercial and industrial lending. He then concluded that he would be hard pressed to describe broad financial conditions as restrictive.
A central bank saying inflation is above target and conditions are not restrictive has described a state of affairs, not a decision. But that state of affairs has only one direction of correction.
What the Market Did With It
US Treasury yield curve data show the response on the day of the speech itself.
| Maturity | 27 August | 28 August | Change |
|---|---|---|---|
| 3 months | 3.84% | 3.90% | 6 basis points |
| 1 year | 4.04% | 4.15% | 11 basis points |
| 2 years | 4.20% | 4.34% | 14 basis points |
| 10 years | 4.67% | 4.73% | 6 basis points |
| 30 years | 5.19% | 5.22% | 3 basis points |
The shape of that response says more than its size.
The short end moved most. The long end barely moved at all. When a market prices higher near-term rates without materially changing the 30-year yield, it is saying two things at once: that policy will be tighter in the near term, and that this is precisely what will keep long-run inflation in place.
That happens to corroborate a claim Warsh himself made in the same speech - that medium-term inflation expectations remain anchored. The curve responded exactly as a curve responds when it believes the central bank.
And one detail worth noting: the effective federal funds rate stood at 3.63% on 27 August, while three-month government debt traded at a yield of 3.90%. The short end was already pricing a rate above the one actually in force, before the speech.
The Speech Is Mostly About Something Else Entirely
It is easy to miss from the headlines, but most of the speech is not about inflation. It is about how the Fed speaks. The term forward guidance appears in it ten times.
Warsh argues that forward guidance was adopted as a regular practice during the 2008 financial crisis, that it was essential then, and that the practice "has overstayed its welcome". In normal times, on his account, it "risks creating ambiguity in the name of clarity", and when policymakers make quasi-commitments on rates through the cycle they inhibit their own freedom to act when the moment to decide arrives.
His reasoning rests on what he calls the hall-of-mirrors problem: if markets lean materially on Fed guidance, and the Fed leans on market prices, both become blinder to new developments. He adds a remark worth quoting - the party who suffers the worst harm from such an error is not the holder of financial assets, but precisely the person who holds none.
And he offers a concrete example: the forward guidance of 2021, he says, might well have slowed the policy response to the inflation that followed.
There is a tension here worth noting. The next meeting, on 15-16 September, is one that carries macroeconomic projections - the very document that publishes committee members' own rate forecasts. A chair narrowing forward guidance arrives in two weeks at the meeting that publishes exactly that.
The Least Conventional Sentence in the Speech
Inside the discussion of inflation expectations sits a line a central bank does not usually say about itself:
"There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs."
This is not a defence and not a circumstantial explanation about supply chains or a pandemic. It is an explicit assumption of responsibility, spanning more than five years, in a new chair's first speech.
And What He Said About Artificial Intelligence
The symposium theme this year was financial innovation, and Warsh devoted a substantial part of the speech to artificial intelligence - not as a sector, but as a new macroeconomic variable and possibly an additional factor of production.
The figure he cited: annualised token sales for the two leading labs alone stand at more than $100 billion - an increase of more than 500% within a year.
And he ties that directly to investment figures in the economy. The four-quarter change in investment in equipment and intangibles is running at about 9%, the fastest since 2021, and in his assessment more than half of this year's investment growth can be ascribed to the AI buildout.
The questions he leaves open are the right ones, and he does not pretend to answer them: whether the usage will be complementary to labour or competitive with it, where returns on capital will land, and what the equilibrium price of a token will be. The Fed has established a task force on productivity and jobs - but Warsh made clear its recommendations "will come later and have no bearing on decisions we make in the current policy conjuncture".
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this day is not a rate forecast. It is a distinction between two questions that are easy to conflate.
The first question is what the Fed Chair said. The answer is precise and checkable: he said inflation is above target, that its breadth is still high, that financial conditions do not look restrictive to him, and that he is committed to a discipline rather than a decision. He did not say what he will do in September.
The second question is what the market understood. That too has a precise answer: the short end of the curve rose, the long end barely did, and that is the shape which prices tighter policy in the near term.
And my point is that the gap between the two is exactly what Warsh is trying to produce. A speech that is largely an argument against forward guidance, after which the market prices a move - that is not a failure of the speech, it is its purpose. He describes a state of affairs and leaves the market to infer, instead of dictating an inference to it.
What I will track is not the headlines but the two numbers I opened with: six-month inflation against twelve-month. As long as the shorter runs above the longer, the claim that inflation is cooling rests on a measurement window rather than on a trend. If that gap inverts before 15 September, this speech will read entirely differently.
And a last thing, on the admission about 65 months. I do not recall many central bank speeches that open a period by taking responsibility for the period that preceded it. One can read it as a rhetorical move. I read it mainly as setting a bar - someone who pins inflation on himself finds it harder to pin it on circumstances the next time.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
