Fed Chair Kevin Warsh explains why interest rates are left unchanged
A divided Federal Reserve left its key interest rate unchanged on July 29, despite President Donald Trump’s calls for a cut.
Some of the top minds in economics are gathering to hear Federal Reserve Chair Kevin Warsh’s remarks at an annual symposium in Jackson Hole, Wyoming, that has been the location of major monetary policy announcements in past years.
Warsh, who so far as been quiet on what’s next for short-term interest rates since taking over as Fed chair in May, is scheduled to speak at 8 a.m. local time. In addition to addressing the event’s theme, “Financial Innovation: Implications for Payments and Policy,” he is expected to discuss some of the changes he’s made at the central bank over the past three months, including task forces he formed to advise policymakers.
“He can give a relatively vague speech about how he wants to change the institution and how he wants to engage in some kind of regime shift without telling us anything about the progression of monetary policy,” Skanda Amarnath, Employ America executive director and former New York Fed research analyst, said. “Or he can use this opportunity to say that the data has changed in some meaningful ways, and we really need to make sure we get on top of it.”
Warsh has taken a hardline stance against inflation, pledging to bring it back down to the Fed’s 2% target, but it remains unclear how he plans to get there. In July, he suggested that markets may be doing some inflation-fighting work for it. Investors will likely be listening closely after long-term borrowing costs reached their highest levels in nearly two decades, and the Treasury doubled buyback sizes for long-duration debt.
“This is one of the more meaningful Jackson Hole gatherings in some time,” Larry Holzenthaler, a senior portfolio manager at Catalyst Funds, said in a note to USA TODAY, adding that after Warsh referred to his speech as “a blank piece of paper” in July, “Investors are going to be anxious to see what’s on the paper.”
Why the Fed chair’s keynote address may matter to consumers
Warsh chairs the Federal Open Market Committee, the body responsible for setting a target range for short-term interest rates.
It typically raises the range to tame inflation and lowers it to stimulate the job market. A higher range means U.S. consumers pay more interest on things like credit cards, car loans, and personal loans, while savers benefit from higher returns on their high-yield savings accounts and certificates of deposit. A lower range has the opposite effect.
The committee voted in July to keep the range at 3.5% to 3.75%, as it has so far this year. Since then, policymakers have witnessed the United States reignite a trade war with Canada. There’s also the ongoing war in Iran. Both developments risk driving prices higher.
The day before Warsh’s speech, a majority of traders were still predicting that the committee will leave the target range unchanged at its next meeting in September, according to CME FedWatch, though many were still betting on a hike sometime before the end of 2026.
The Fed chair has an opportunity to “set the agenda” at the symposium, Amarnath said.
Warsh could say “we really do want to take inflation seriously here and that we do need to consider a hike in September,” Amarnath added. “That’s probably the rational case, but it’s kind of at odds with his MO as Fed chair, which is to not give any information.”
How is the US economy doing?
Inflation continues to run well above the Fed’s 2% target. Personal Consumption Expenditures, the Fed’s preferred measure of inflation, was up 3.7% over the year in July, in line with June’s pace.
The Labor Department’s Consumer Price Index showed that prices overall rose 0.1% over the month in July, but the rate of annual inflation slowed to 3.4%. Over the year, prices still rose faster than workers’ paychecks.
After a hiring spree this year, the labor market has shown some signs of cooling. U.S. employers shed 23,000 jobs in July, but the national unemployment rate dropped to 4.1%, though experts said it fell for “the wrong reason.”
U.S. real gross domestic product, or GDP, increased at an annual rate of 1.5% in the second quarter this year, according to the latest estimate from the Bureau of Economic Analysis. That’s a “solid, but unspectacular” performance, according to Jim Baird, chief investment officer with Plante Moran Financial Advisors.
Consumers are still spending, but they’re feeling a little worse about the economy. The Conference Board’s consumer confidence index and the University of Michigan’s measure of consumer sentiment both fell in August.
“Although the early month weakening in sentiment was pervasive across various demographic groups, notably large reductions were seen among older consumers, lower-income consumers, and those without a college degree,” Joanne Hsu, the university’s director of surveys of consumers, said in a statement.“These groups are all particularly vulnerable to any erosion of purchasing power stemming from inflation.”
What are Fed governors saying?
Although the Federal Open Market Committee voted to hold its benchmark for interest rates steady at its last meeting, the decision wasn’t unanimous. Three of 12 voting members dissented. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan preferred to raise the target range by a quarter-point.
“Now is the time to act,” Hammack said in an Aug. 11 post to LinkedIn. “There’s no tension in the mandate. Policy isn’t restrictive. And the longer we wait to take action to bring inflation back to our 2 percent objective, the more challenging it will be to bring it back down and the more expensive it will be for the American people.”
Minutes from the July meeting revealed “most” participants thought inflation would cool throughout the remainder of the year as the effects of tariffs and energy prices waned, but that “many” were concerned inflation would stay elevated as the Iran war limits oil supply and AI investment pushes up demand. Committee members thought labor market conditions were “stable,” and judged that higher rates “would likely be necessary if inflation did not decline,” the minutes said.
Kashkari told CBS on Aug. 23 that he’s watching to see how continued conflict in the Middle East and a U.S.-Canada trade war will affect prices, but that he’s waiting to see August inflation and employment data before deciding how he will next vote.
“I don’t want to prejudge the next meeting, but I’m not feeling confident right now that inflation is heading back down to target in a short period of time,” Kashkari said. “The longer there’s back and forth on the trade front, just like the longer there’s back and forth in the conflict of Iran, the imprint in inflation ends up being extended and delayed.”
Although Fed Governor Lisa Cook did not dissent from the last decision, ahead of the July meeting she said she’d be prepared to act if inflation didn’t begin to slow. She is still fending off an attempt by President Donald Trump’s administration to remove her from her role. Her lawyers, in an Aug. 26 statement to USA TODAY, maintained that there is “no legal basis” for her removal.
(This is a developing story that will be updated to add new information.)
Reach Rachel Barber at rbarber@usatoday.com, follow her on X @rachelbarber_, and subscribe to her newsletter “Making More of Your Money” here.