Fed Speeches: Warsh's Jackson Hole Case for a Quieter Fed

Of all the Fed speeches in a given year, the one delivered by the chair at the Kansas City Fed’s Jackson Hole symposium carries the most weight. On August 28, 2026, Chairman Kevin Warsh used the occasion, three months after taking the oath of office on May 22, to explain not just what he thought about the economy but how he thought the Federal Reserve should make decisions. The address, titled “In Our Time,” amounted to a critique of several habits the Fed had developed over the previous two decades, paired with a blunt assessment that inflation remained the most pressing problem.

A speech about method

Warsh organized the talk around artificial intelligence, the limits of forward guidance, a set of six principles for policy, and a review of current conditions. The organizing idea was that the Fed should innovate in how it conducts policy, rather than relying on frameworks built for a different era.

On AI, he described the technology as a potential new factor of production deserving intensive study. The open questions he listed were the ones economists have been debating: whether AI produces a lasting rise in productivity, whether it complements or substitutes for workers, and how its gains are divided among owners of capital, employees and consumers. For a central bank, the answers matter because they shape estimates of how fast the economy can grow without generating inflation.

The case against routine forward guidance

The most consequential part of the speech for markets was Warsh’s argument against routine forward guidance. He described a hall-of-mirrors problem, in which investors take their cues from the Fed’s signals and the Fed in turn reads market prices that largely reflect its own signals. The result, in his telling, is that the information content of market prices declines precisely when policymakers need it most. He argued that transparency about future decisions is not a virtue in its own right, and that a quieter Fed, more deliberate about when it speaks, would be better placed to meet its goals.

The implication is a shift in how the Fed is held accountable. Rather than judging the institution by whether it follows through on the paths it has signaled, Warsh proposed judging it by whether it delivers on its mandate. He framed this as a commitment to a discipline rather than to a particular decision.

Six principles

The speech set out six principles. The first was to interrogate reality with relevant, timely and accurate data, rather than relying on stale information. The second was humility about the supply side: economic activity can be observed, but the economy’s productive capacity has to be inferred. The third was that the 2 percent PCE inflation target is fixed, and that price stability does not maintain itself; the Fed has to deliver it. The fourth was that price stability and maximum employment are compatible rather than competing goals. The fifth was that short-term interest rates should be the predominant policy tool, with unconventional measures kept for unusual times. The sixth was that money matters, and the Fed should monitor money creation by both the central bank and the financial system.

Taken together, the principles describe a central bank that speaks less about the future, relies more on current data, leans on the policy rate rather than the balance sheet, and pays renewed attention to monetary aggregates, a subject that had largely fallen out of fashion in Fed communications.

An economy running hot on prices

Warsh’s review of conditions was notably upbeat on activity and notably concerned about inflation. He cited business capital spending rising by about 9 percent, with more than half of that growth tied to AI investment; S&P 500 profits up more than 20 percent from a year earlier; real consumer spending up more than 2 percent over four quarters; and unemployment steady at 4.1 percent with jobless claims near multi-decade lows.

On prices, he cited PCE inflation of 3.7 percent over 12 months and 4.1 percent over six months, both well above the 2 percent target. He pointed out that 54 percent of the goods and services in the PCE basket had shown price increases above 3 percent over the past year, a measure of breadth that undercuts the argument that inflation is confined to energy. Progress, in his assessment, had been modest, and underlying trends had not meaningfully improved. He also noted strains in housing and agriculture, and observed that credit spreads were near historical lows and lending standards unusually easy.

Reading Fed speeches as signals

Warsh did not announce a rate decision at Jackson Hole, and his argument against forward guidance would have made it awkward to do so. But the combination of a strong activity picture, inflation running near 4 percent on a six-month basis, easy financial conditions and an explicit statement that price stability must be actively delivered left little doubt about the direction of his thinking. At the Fed’s previous meeting in July, three voters had dissented in favor of a rate increase. The Jackson Hole speech gave their position a chair’s intellectual framework.

The speech also invites comparison with central bank policy elsewhere. The ECB had already raised rates in June, and the Bank of England held in July with three members voting to hike. What set Warsh apart was less the policy direction than the attempt to change the Fed’s style: fewer signals, more emphasis on current data, and an insistence that credibility comes from results rather than promises.

What to watch

Two questions follow from the address. The first is whether the Committee’s communications change in practice, including how much weight is placed on the quarterly projections and how often policymakers signal future moves. The second is whether the inflation diagnosis translates into action. A chair who says the Fed needs confidence that underlying inflation is clearly moving down has set a high bar, and the data in the weeks after Jackson Hole would determine whether the Committee cleared it or moved to tighten.