Federal Reserve Chairman Kevin Warsh, appointed by President Trump, made clear during his Friday appearance at the Jackson Hole symposium — the Kansas City Fed's annual gathering in Wyoming that has historically served as a venue for major policy signals — that interest rates could be hiked this year if inflation does not settle down quickly enough.

Warsh acknowledged that summer inflation figures came in cooler than expected, but said that was not enough to show the broader trend had shifted. "While this summer's [inflation] readings were better than expected, they do not tell me that underlying trends have meaningfully improved."

Inflation, he indicated, is still running too hot for the Fed to ease policy. The central bank wants evidence that inflation is returning to its 2% goal fast enough. "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job, our mandate and our charge to keep," Warsh said. Inflation has now remained above the Fed's target for roughly five years since the post-pandemic surge first pushed prices past it.

Data from CME Group (NASDAQ: CME) showed traders pushing the probability of a September rate increase to 55.7%, roughly 20 percentage points higher than on Thursday. The Fed's next policy decision is scheduled for Sept. 16, meaning the remaining inflation and employment reports before that meeting will be closely watched for any sign of whether the hawkish shift hardens into action.

Warsh keeps inflation front and center as markets price in another hike

Heather Long, chief economist at Navy Federal Credit Union, said Warsh had "opened the door to a Fed rate hike. A hike probably won't come in September, but it will by October or December."

Long added: "Warsh explicitly said this summer's encouraging inflation readings don't indicate 'meaningful' improvement on inflation. Bond markets reacted swiftly by pricing in a hike."

Warsh also said markets still believe the Fed will restore price stability. "Market prices show confidence that we will deliver price stability. And I can assure you they're right." He said inflation must remain at the top of the Fed's priorities, while describing an economy that "appears to have strengthened."

He cited artificial intelligence as one driver of growth and noted that consumers and companies have continued to spend. Hiring has become less vigorous, he said, attributing that to the labor force no longer growing at the same pace.

Warsh's prepared remarks outlined how he intends the Fed to handle policy. He did not lay out a rate path or specify data points that would compel the central bank to act. "I stand here today committed to a discipline, not to a decision," he told Federal Open Market Committee officials, economists, and reporters. That stance fits Warsh's long-standing public position that the Fed should react to incoming data rather than pre-commit to a course of action.

Warsh has been criticized for being restrictive in providing policy signals as long as inflation exceeds the targeted level. He has opposed the concept of forward guidance, arguing that markets should focus on the data rather than hints from the Fed. In his speech, titled "In Our Time," Warsh remarked: "You can call it an outline, you can call it a trail map, but don't call it forward guidance."

Stocks, bonds, gold and Bitcoin slide as another hike stays on the table

Kalshi traders adjusted their bets after the speech. The prediction market put the odds of a 25-basis-point increase at 48%. Before Warsh spoke, almost 70% expected no change in September. Treasury yields moved higher, with the 2-year yield — which is sensitive to Fed expectations — climbing to its highest level since late July. Higher rates raise borrowing costs and tend to weigh on asset prices that had benefited from easier policy expectations.

Wall Street ended Friday lower, even though the main indexes finished the week higher. The S&P 500 dropped 0.25% to 7,711.76. The Nasdaq Composite lost 0.52% to 26,402.42 as chip stocks weakened, including Nvidia (NASDAQ: NVDA) and Intel (NASDAQ: INTC). The Dow Jones Industrial Average fell 9.45 points, or 0.02%, to 53,559.99. For the week, the S&P 500 rose 0.5%, the Nasdaq gained 0.9%, and the Dow climbed 0.5% — its first weekly gain in three.

Gold also moved lower. Spot prices slipped below $4,500 an ounce after Warsh said price stability had become the Fed's "predominant focus." Gold, which pays no interest, tends to lose appeal when rates and yields rise. Inflation remains above 2% five years after the surge that carried it past the central bank's target.

Bitcoin fell by roughly $3,000 in about 60 minutes as traders reacted to higher rate expectations. Around $200 million in leveraged long positions were liquidated during the drop, adding forced selling. Like other risk assets, crypto has historically traded sensitively to shifts in Fed policy expectations.