JACKSON HOLE, Wyo. — Federal Reserve Chair Kevin Warsh told central bankers gathered in the Grand Tetons on Friday that inflation remains too high and that the central bank may have to raise interest rates in the coming months, the clearest hawkish signal he has offered since taking the job from Jerome Powell in late May.

The Sept. 15-16 policy meeting now looks like a coin toss on a rate increase. Futures pricing tracked by CME FedWatch swung to roughly even odds of a hike after Warsh's speech, up from about one-third before he spoke. The two-year Treasury yield, which most closely tracks Fed expectations, climbed to 4.30 percent from 4.22 percent. Yields on 10-year and 30-year Treasuries were mostly flat, suggesting bond investors do not expect rates to stay elevated for a long stretch.

"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed," Warsh said in his first speech at the Kansas City Fed's annual symposium. "Otherwise, we have work to do."

What Warsh said

Recent inflation reports have cooled a bit, Warsh acknowledged, but "they do not tell me that underlying trends have meaningfully improved." The Fed's preferred inflation gauge, the personal consumption expenditures price index, was 3.7 percent in July, well above the central bank's 2 percent target. Warsh noted that more than half of the goods and services the government tracks have seen price increases of 3 percent or higher over the past year, "well above" the roughly one-third that did in the two decades before the pandemic.

Warsh, who has resisted providing what analysts call forward guidance, reiterated that "[o]versharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray." The practice, adopted after the 2008 financial crisis, had "overstayed its welcome," he said. He also cleaned up questions left over from his July 29 news conference, specifying that short-term interest rates are the Fed's "predominant tool" for containing prices. The Fed's benchmark rate sits at about 3.6 percent.

Bond desks parse the signal

Jon Faust, an economist at Johns Hopkins and a former adviser to Powell, said Warsh threaded the needle. "He found a way to convey that if necessary he would support raising rates, which is one thing people were concerned about," Faust said.

Analysts at Capital Economics called the speech a "far clearer - and hawkish - message" that left "the door open to a hike" earlier than markets had priced.

The Bessent split

The signal complicates a divergence at the top of Trump economic policy. Treasury Secretary Scott Bessent, who is trying to bring down long-term borrowing costs, announced on Aug. 19 that Treasury would at least double its purchases of long-term government bonds for a two-month stretch starting Sept. 9, after the 30-year yield hit a 19-year high. Warsh's speech pointed the other way at the short end of the curve.

Billionaire investor Stanley Druckenmiller, who mentored both men, warned in an Aug. 24 op-ed for The Wall Street Journal that Treasury's intervention was pushing against the tide of U.S. debt, which crossed $40 trillion the same day Bessent moved. "The long-term Treasury yield is the most important price in the world," he wrote. "Governments defending prices against fundamentals always lose."

The counterpoint

Michael Strain, director of economic policy studies at the American Enterprise Institute, cautioned that Warsh has talked tough on inflation before without lifting the Fed's benchmark rate, and said Friday's remarks did not clarify the timing of any move. President Trump, who appointed Warsh and has publicly demanded lower rates, had not publicly responded by Friday evening. The reporting driving today's account came from wire and international outlets; reactions from left- and right-leaning commentators, and from congressional leaders in either party, were not part of the record by press time.

The Federal Open Market Committee meets next on Sept. 15-16.