Warsh Says Fed Has “Work to Do” If Prices Don't Fall. They Won't.

• July PCE inflation reached 3.7%, nearly twice the Fed's 2% target, while core PCE rose 3.3%, indicating inflation is not merely an energy-price issue
• Tariff effects could persist for 9-12 months according to NY Fed research, with about 26% of tariff increases passed through to consumer prices, creating ongoing inflationary pressure
• Three FOMC officials already preferred a rate hike at the July meeting, and Fed Cleveland President Beth Hammack stated a rate increase is necessary if inflation remains around 3% at year-end

Summary

Market Performance:

Major indices closed mixed on August 28, 2026: S&P 500 down 0.09% at 7,715.70, Dow Jones down 0.05% at 53,531.60, Nasdaq down 0.49% at 29,438.20, and Russell 2000 down 1.31% at 2,975.97.

Key Development:

Fed Chair Kevin Warsh signaled at the Jackson Hole Economic Policy Symposium that the Federal Reserve may need to raise interest rates if inflation doesn't show clear progress toward the 2% target, stating policymakers have "work to do."

Inflation Data:

• July PCE inflation: 3.7% (nearly double the Fed's 2% target)
• Core PCE: 3.3%
• Consumer prices rose 3.4% year-over-year through July

Market Implications:

While a September rate hike appears unlikely, the probability of at least one 25-basis-point increase before year-end is rising. Three FOMC officials already preferred a rate hike at the July meeting. Upcoming meetings scheduled for October 27-28 and December 8-9 could see action.

Inflationary Pressures:

• A New York Fed study found 26% of tariff increases passed through to consumer prices, with indirect effects taking 9-12 months to materialize
• Energy price volatility tied to Iran geopolitical tensions
• Treasury Secretary Scott Bessent's bond-buying program (doubled to $4 billion per operation) works against Fed's tightening efforts

Bottom Line:

Fed Cleveland President Beth Hammack warned inflation could remain around 3% at year-end, making rate increases necessary if pressures persist. Investors should prepare for a "higher-for-longer" rate environment rather than expecting imminent monetary easing.