Fed Chair Warsh’s Jackson Hole Remarks Move Markets, But Questions Remain Over Policy

Mike Maharrey

Federal Reserve Chairman Kevin Warsh moved markets on Friday with his Jackson Hole speech, even though the central bank has yet to take any action to move inflation.

Warsh clearly wanted to send a message: he is tough on inflation, and the Fed will “deliver price stability.” It is less clear whether he will be able to deliver on that hawkish promise.

In that sense, the Warsh Fed looks a lot like the Powell Fed, relying on rhetoric rather than policy.

Ironically, Warsh said, “We should not indulge a regime in which market participants are looking primarily to the Fed for their next trade.”

After the speech, gold and silver both sold off, with the yellow metal falling by more than 3 percent and silver plunging by more than 4 percent. Stocks also corrected, with the NASDAQ dropping by nearly 139 points.

Why did the market react so strongly?

Because the economy remains addicted to easy money, and Warsh signaled he is not inclined to refill the punch bowl while inflation is still running well above the mythical 2 percent target.

His remarks reignited speculation that the central bank could raise interest rates at least once before the end of the year. Since gold and silver are non-yielding assets, a higher-rate environment is generally seen as negative for metals.

So much for market participants not looking to the Fed.

And it is worth remembering that the central bank has not actually changed anything. The markets reacted to Warsh’s “open-mouth operations,” not to a policy move. Still, because the Fed’s words can quickly alter expectations around borrowing costs, inflation, and asset prices, every hint from Jackson Hole tends to get parsed closely. And there are about 40 trillion reasons Warsh will have an extremely hard time delivering on his hawkish promises.

What Warsh Said

Warsh did not mention a rate hike during the speech. However, he dropped enough hints to convince many observers that rate increases are still on the table.

John Hopkins economist and former Jerome Powell advisor Jon Faust told the Associated Press, “He found a way to convey that, if necessary, he would support raising rates, which is one thing people were concerned about.”

While Warsh acknowledged that inflation has cooled somewhat, he said the data “do not tell me that underlying trends have meaningfully improved.”

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

He said the “objective” is price inflation at 2 percent.

“The Fed's price-stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target.”

Warsh also emphasized that it is the central bank’s responsibility to keep inflation under control.

“That’s our job, our mandate, and our charge to keep.”

He added that “price stability is not self-executing, nor is inflation necessarily mean-reverting.”

“It is the Fed's job to deliver stable prices.”

And how does the Fed do that, according to Warsh?

“Short-term interest rates are the predominant tool to achieve the dual mandate.”

Analysts widely interpreted that statement as a sign that Warsh and Co. are on a rate-hiking path, possibly as early as next month.

But Warsh never said the Fed will raise rates. He did not provide any timeline. He simply made forceful remarks about being tough on inflation.

As most bullies learn, talking tough and being tough when the punches fly are two different things.

40-Trillion Reasons the Fed Probably Can’t Deliver

The Fed chair has been talking tough on inflation since taking office in May. Yet two Fed meetings into the Warsh era, there has been no policy change. The federal funds rate has remained at 3.5 percent since December 2025, even though both Powell and Warsh have warned about persistently sticky inflation.

That raises an obvious question. If inflation remains stuck well above the target, as it has for years, why not do something other than talk about how serious the problem is? At some point, shouldn’t the central bank stop talking and act?

The answer is yes — unless there is a reason it cannot.

And there is, in fact, a reason — about 40 trillion of them.

That is a reference to the $40 trillion national debt.

The national debt is costing the federal government more than $1 trillion per year. The U.S. Treasury Department recently announced a bond market intervention in an effort to push long-term rates lower. It did not work.

How does the Fed hike rates in that environment?

The national debt is only one part of the larger debt black hole. Americans are buried under trillions more in consumer debt at extremely high credit card rates, while corporations are leveraged to the hilt.

If the Fed raises rates to fight inflation, it will almost certainly crash the debt-riddled bubble economy.

That is the Catch-22 I have been discussing for months.

The Fed needs to raise rates to push inflation back toward target, but it also needs to cut rates to manage the debt black hole and keep the economy moving.

For that reason, I do not think the Fed will hike rates. And if it does, I think it will tip the economy into a deep recession and likely a financial crisis.

Either way, you want to have gold and silver.

About the author

Mike Maharrey

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