On August 28, 2026, Federal Reserve Chairman Kevin Warsh delivered a keynote speech at the Jackson Hole Economic Symposium. He departed from his previous ambiguous policy stance, projecting a clear and strong hawkish position, explicitly stating that the Fed is prepared to raise interest rates at any time ("We are ready to work") and is determined to push inflation back to the 2% target. This speech was seen by the market as a significant turning point in the Fed's monetary policy, completely reshaping interest rate expectations for the September policy meeting and directly impacting the dollar, US Treasury bonds, and major asset classes. This speech marked Warsh's first major public statement at Jackson Hole since becoming Fed Chairman. Compared to his silence at the July press conference, this speech was resolute and hailed as a "milestone shift in policy," significantly restoring the previously damaged credibility of the Fed's policies. In my view, Warsh's expression was very straightforward. He meant that previous data suggested no rate hike, but he believes that's irrelevant. Let's just look at the September data. Let's assume the previous data, even if the non-farm payrolls and revised data were terrible, and that employment was good, then if the non-farm payrolls and CPI data fall short of expectations, then he really can't raise rates. In other words, he's disregarding the previous positive data on inflation control and weak employment that favored rate cuts; we'll just look at the subsequent data.

Adhering to the hard target of 2% inflation, refuting the argument of "substantial improvement".

In his speech, Warsh emphasized that the Federal Reserve's 2% inflation target, measured by the Personal Consumption Expenditures (PCE) price index, is an absolutely hard target. He explicitly refuted the market's optimistic interpretation of the summer inflation data as a decline, acknowledging that the current inflation situation remains severe. Data shows that the PCE price index rose 3.7% year-on-year in July, marking 65 consecutive months of inflation deviating from the target. In Warsh's view, this summer's better-than-expected CPI and PCE data are merely short-term fluctuations. He pointed out, through analyzing the 199 components of the PCE index, that 58% of goods and services prices still rose by more than 3% over the past 12 months (even though this has decreased to 49% in the last six months), proving that the inflation diffusion effect remains stubborn. Furthermore, he abandoned the lagging wage growth indicator, emphasizing that he will prioritize forward-looking real-time data to ensure that policy adjustments align with underlying fundamentals.

"Fed Rate Hikes" Hedging Against "White House Bond Buying": Deep-seated "Fiscal-Central Government Game" Emerges

Behind this speech lies a potential struggle for control over financial conditions between the Federal Reserve (Wash) and the Treasury/White House (Bessenter): The White House's demands (fiscal easing): Treasury Secretary Bessenter attempted to forcefully lower long-term Treasury yields through fiscal intervention measures such as "issuing short-term bonds and repurchasing long-term bonds (Treasury Twist)," thereby reducing the government's debt burden and providing a "watered-down" interest rate for the real economy. The Federal Reserve's bottom line (monetary tightening): The White House's de facto easing loosened financial conditions across society, directly increasing the difficulty of combating inflation. In his speech, Warsh bluntly stated that the current financial environment was "hardly restrictive" and warned of "being ready to raise interest rates at any time," which was actually a reverse containment and hedging against the White House—that is, by raising short-term interest rates, forcibly offsetting the Treasury's intervention effects and ensuring the central bank's dominance over monetary policy. This hedging pattern of "the White House paving the way (easing) and the Federal Reserve digging the hole (tightening)" directly widened the US-Japan interest rate differential and pushed up long-term US Treasury yields, signaling the failure of the Treasury's unilateral attempt to "watered-down" interest rates.

The two-way suspense surrounding data dependence: the September decision remains uncertain.

Following the speech, market expectations for a 25 basis point rate hike in September jumped from 35% to 58%, potentially pushing the current benchmark interest rate range of 3.50%-3.75% upwards. However, Warsh's emphasis on "strict adherence to real-time data" actually leaves considerable room for maneuver at the FOMC meeting on September 15-16: Rate Hike Path: If the upcoming August non-farm payroll data remains strong and August CPI inflation stickiness exceeds expectations, the Fed will naturally resume rate hikes, effectively suppressing inflation expectations. Hold Off/Shift Path: Warsh's hawkish stance essentially establishes "policy optionality." If the August non-farm payroll data shows a significant slowdown, or core CPI experiences a substantial and unexpected cooling, the Fed can choose to pause rate hikes or even remain on the sidelines based on "data-driven" factors.

After all that talk, much of it has already been said before:

Overall, Warsh's Jackson Hole debut established the Fed's tone of "inflation first, data-driven, and ready to raise rates at any time." However, it remains data-driven, and the outcome of the data will hinge on the upcoming non-farm payrolls and CPI figures. In other words, previous weak non-farm payroll data and downward revisions are irrelevant; the focus will be on these two figures in early September. The upcoming August non-farm payrolls and CPI data will not only test the Fed's resolve to combat inflation but will also serve as a crucial indicator of the direction this "fiscal-central bank game" will take.