Warsh raises stakes for Fed's next meeting and other takeaways from Jackson Hole conference

Federal Reserve Chair Kevin Warsh provided his most detailed insights yet on how he views the central bank's fight against inflation in a high-profile speech an at annual economic conference in Jackson Hole Friday

WASHINGTON -- Federal Reserve Chair Kevin Warsh renewed his inflation-fighting credentials in a speech Frida y that opened the door to potential rate hikes in the coming months.

In doing so, Warsh has put more pressure on the central bank to increase interest rates when it next meets in mid-September if inflation doesn't improve . The government's next price report, to be released just days before the meeting, could play an outsize role in determining whether the central bank acts.

Warsh's high-profile speech at the Fed's annual Jackson Hole economic conference was mostly praised afterward by economists and other Fed policymakers in attendance. Still, there was also some pushback and criticism during the first day of the conference. It ends Saturday.

While Warsh opened the door to raising borrowing costs, he did not commit to any particular timing. It's not surprising given his aversion to the signals his predecessors sent about their next moves, which Warsh felt boxed the Fed in to a preset path.

Some analysts, however, saw strong hints that a rate increase in September is a real possibility. Warsh noted that he and other Fed officials who supported keeping rates unchanged at their July 28-29 meeting “thought the wiser course was to await new information in the intermeeting period ... before deciding whether a change in interest rate policy was advisable.”

That suggests that Warsh wanted to see clear evidence of cooling inflation after the July meeting to remain on hold. Yet elsewhere in his remarks he said that such evidence hasn't emerged — even as gas prices have come down somewhat, underlying inflation hasn't “meaningfully improved."

By sending such signals, Warsh has raised expectations for a hike next month, which could erode his credibility if inflation stays high and he doesn't follow through.

“You are basically setting yourself up so that if you don't hike in September, people may ask what's going on,” said Adam Posen, president of the Peterson Institute for International Economics.

When the Fed raises its benchmark interest rate, it often over time can also boost interest rates for mortgages, auto loans, credit cards and business borrowing.

Yet in this case it isn't as clear. Longer-term interest rates — including those on the 10-year Treasury note, which strongly influence mortgage rates — barely rose after Warsh's comments. Analysts said that suggested that investors were reassured that the Fed would bring down inflation over time. Otherwise, they would have pushed longer rates higher.

In short, longer-term rates don't always follow the Fed's lead, so even if there is a rate hike in September, it may not push up consumer borrowing costs. As it is, the average rate for a fixed 30-year mortgage is 6.66%, according to Freddie Mac, slightly higher than a year ago.

Much of Warsh's speech actually focused on the potential for artificial intelligence to strongly boost the economy.