Federal Reserve Chairman Kevin Warsh’s August 28, 2026 Jackson Hole speech deserves careful attention because he provided the clearest indication yet of how he intends to define Federal Reserve credibility.
Warsh declared that the Federal Reserve’s 2 percent inflation target is “firm” and “fixed,” said current inflation remains too high and concluded that the Fed’s “predominant focus right now should be on prices.” He also made clear that he regards short-term interest rates as the Fed’s predominant monetary-policy tool and unconventional interventions as appropriate principally for genuine crises.
Warsh and Rates: CIR On Point
On July 29, Creative Investment Research (CIR) issued a warning titled “Federal Reserve May Consider Rate Hike to Establish Chairman Warsh’s Inflation-fighting Credibility.” We argued that Warsh faced an unusual institutional problem: as a newly installed chairman operating amid intense political pressure for lower rates, he might feel compelled to establish his independence and inflation-fighting credentials by adopting a more hawkish posture than financial markets expected.
A month later, Warsh is explicitly making credibility, monetary discipline and the fixed 2 percent inflation target central elements of his framework.
So, yes: our forecast was accurate. In other words, we told you so.
That does not mean a rate increase is inevitable. But the market itself immediately understood the significance of Warsh’s remarks. Following the speech, market-implied odds of a September rate increase jumped from roughly 35 percent to the mid-50-percent range, while the two-year Treasury yield moved sharply higher. That reaction is important because it demonstrates something Warsh himself seems reluctant to acknowledge: Federal Reserve communication is policy.
A Productivity and Jobs Task Force—Without the People Most Exposed to Its Decisions
Warsh devoted part of his speech to artificial intelligence, technological transformation, productivity and employment. He said the Fed would examine these issues with the assistance of a new Productivity and Jobs Task Force, adding that his early discussions with its leaders and those of four other task forces had been encouraging.
There is a serious problem with this arrangement.
The three publicly listed leaders of the Productivity and Jobs Task Force are Marc Andreessen of Andreessen Horowitz, Stanford economist Charles I. Jones, currently on leave at Anthropic, and Microsoft executive Asha Sharma.
While these are accomplished people, we ask: where is the representation from the communities whose jobs are most vulnerable?
There is no publicly identified Black representative among the task force leaders. Nor is there a leader drawn from organized labor, a minority-business organization, a low-income community institution, a community-development organization, or another institution whose primary mission involves workers and communities likely to bear the downside of technological displacement. That omission is particularly striking for something called a Productivity and Jobs Task Force.
If the Federal Reserve genuinely wants to understand how artificial intelligence will affect employment, it cannot obtain a complete answer exclusively from venture capital, technology corporations and elite academic institutions. The question is not only how much productivity AI creates.
The question is who captures that productivity, who loses employment, whose wages decline, which businesses disappear, and which communities absorb the transition costs.
Warsh himself asks where the economic surplus generated by AI will ultimately go—to owners of scarce assets, technology firms, workers, businesses or consumers. That is exactly why the people potentially receiving the smallest share of that surplus should have a seat at the table.
Warsh Is Wrong About Transparency
Warsh then makes one of the most debatable claims in the speech:
“Transparency in communications about future policy decisions is not a virtue unto itself.”
He argues that communication must serve the Fed’s responsibility for getting monetary policy right and that forward guidance should generally be limited outside genuine crises.
We disagree. And, more importantly, the market appears to disagree.
Investors have spent much of Warsh’s first months as chairman asking for greater clarity about his reaction function and the direction of monetary policy. Before Jackson Hole, Reuters reported significant investor concern about Warsh’s reduced reliance on forward guidance. After this speech, financial markets moved immediately and materially as traders reassessed the probability of a rate increase. That is not evidence that communication is unimportant. It is evidence of precisely the opposite.
Transparency should not mean that the Federal Reserve promises a particular interest-rate decision months in advance regardless of circumstances. Warsh is right to resist that kind of false precision. But transparency is much broader than forward guidance.
Federal Reserve communication must serve not only monetary-policy execution but also democratic accountability.
The Federal Reserve is arguably the most consequential economic policymaking institution in the United States. Its decisions alter interest rates, asset prices, mortgage costs, business investment, employment conditions, bank profitability, credit availability, exchange rates and, ultimately, wealth distribution. It therefore has an obligation to explain its reasoning to the public whose economic circumstances it changes.
The Federal Reserve is not a private hedge fund whose investment strategy is proprietary. It is a public institution exercising governmental authority in the public interest. While the regional Federal Reserve Banks have a distinctive statutory ownership structure involving member-bank stock, monetary-policy authority ultimately operates within a public statutory framework established by Congress. That distinction matters.
Communication is therefore not merely a tool for manipulating—or avoiding the manipulation of—financial-market expectations. Communication is part of the Fed’s obligation to the public.
These Are Not Normal Times
Warsh argues:
“In normal times, the role of forward guidance should be limited and circumscribed.”
Perhaps. But these are not normal times. The Federal Reserve is operating amid extraordinary federal debt, significant political pressure on the central bank, attempts to remove a sitting Fed governor, tariff uncertainty, geopolitical disruption, rapid advances in artificial intelligence, questions concerning the integrity and availability of federal economic data, and persistent uncertainty about inflation.
That is not an environment in which less explanation is preferable. Indeed, these conditions make thoughtful, disciplined and transparent communication more important.
In July 2025, we warned that President Trump’s repeated attacks on then-Chairman Jerome Powell represented more than an ordinary disagreement about interest rates. They constituted a threat to the institutional independence of the Federal Reserve.
The following month, after political pressure was directed at Governor Lisa Cook, we again argued that Federal Reserve credibility depends fundamentally on autonomy from political interference. That issue has not disappeared because there is now a different chairman.
Warsh cannot credibly tell financial markets that the Federal Reserve will do whatever is necessary to control inflation without simultaneously demonstrating that the institution is capable of saying no to the White House when economic evidence requires it.
Suddenly Concerned About Working Americans?
Warsh offers another striking argument while criticizing excessive forward guidance. He says financial-market participants are unlikely to bear the greatest costs when the Fed makes mistakes. Instead, he says:
“Hard-working Americans” are left dealing with excessive inflation or suddenly insecure jobs.
That observation is correct, but coming from the leadership of an institution whose new advisory structure largely excludes representatives of precisely those economically vulnerable populations, the statement is difficult to accept without skepticism. Now the concern is for those without financial assets?
If the Fed genuinely believes that poorer households, workers and people without financial assets bear a disproportionate cost when monetary policy goes wrong, that realization should change more than the rhetoric of a Jackson Hole speech.
- It should change who participates in Federal Reserve policymaking discussions.
- It should change the composition of advisory groups.
- It should require explicit analysis of distributional impacts.
- And it should force the Fed to ask not simply whether aggregate unemployment is “stable,” but whose unemployment is rising.
In December 2024, we warned that minority households and businesses should prepare for an economic environment in which changes in banking, regulatory and federal policies could expose them to disproportionate risks.
Again: we told you so.
Minority-owned companies frequently operate with less accumulated capital, thinner operating margins and greater dependence on bank credit. Higher rates therefore do not affect every company equally.
A basis-point increase imposed on a Fortune 500 company with billions of dollars in cash is not economically equivalent to the same increase imposed on a small business financing inventory through a variable-rate credit line.
If Warsh is genuinely concerned about Americans without large financial assets, the Federal Reserve should begin measuring and reporting those differences systematically.
“Accuracy in Economic Forecasting Is Still Just an Aspiration”
Warsh also says:
“Accuracy in economic forecasting is still just an aspiration.”
Here, an important distinction is required. Accuracy in Federal Reserve economic forecasting may remain an aspiration. That does not mean accurate economic forecasting itself is merely aspirational. The Fed has made consequential forecasting errors.
That is precisely why policymakers should be more open to outside models, independent economists, alternative datasets, minority-business data, community-level indicators and analysts whose forecasts do not necessarily originate inside the Federal Reserve system or the small circle of institutions that traditionally inform it.
Warsh himself says the Fed should receive “the full range of ideas” and should not crowd out differing economic views. We agree completely. Now apply that principle.
If the Fed’s forecasting record is sufficiently uncertain that its chairman publicly describes accuracy as aspirational, that strengthens—not weakens—the argument for expanding the range of economists, communities, institutions and data sources incorporated into policymaking.
Powell Was Right to Stay
That is also why Jerome Powell’s decision to remain on the Federal Reserve Board after leaving the chairmanship was so important.
In May, we argued that Powell was right to stay because financial markets respond not only to individual monetary-policy decisions but also to institutional stability. Political interference introduces uncertainty into the policy process and can weaken the credibility of the institution itself.
Powell’s continued presence supplies institutional memory and continuity without preventing Warsh from establishing his own approach. A “quieter Fed” must not become a less accountable Fed. And quiet must never mean silent when the independence of the institution is threatened.
“Interrogate Reality”—Including the Fed’s Own Assumptions
The strongest phrase in Warsh’s speech is his instruction that policymakers must “interrogate reality.”
On this point, he is correct. Yesterday’s news can easily become mistaken for today’s reality. Policymakers should not react mechanically to one CPI report, one employment report or one financial-market move. Trends matter. The data should be contemporaneous, accurate, relevant and actionable.
But interrogating reality also means interrogating the Federal Reserve’s own institutional assumptions.
- Why is a jobs task force missing leaders from Black communities, labor organizations and low-income communities?
- Why should less transparency automatically produce better policymaking? (Unless you are hiding to prevent political interference....)
- Why should a central bank facing extraordinary political interference act as though these are “normal times”?
- Why are people without financial assets invoked as the victims of monetary-policy mistakes but largely absent from the institutions advising policymakers?
- And why should the Fed’s own forecasting failures become a rationale for less communication rather than broader intellectual participation?
These are also questions about reality.
Reasons or Results
Warsh concludes by calling for a quieter Fed that is more purposeful in its communications and accountable for achieving its mandate. He borrows a line from General Chuck Yeager:
“At the moment of truth, there are either reasons or results.”
On this, we agree. Results matter. But the results we should evaluate extend beyond whether headline PCE eventually reaches 2 percent.
- Did the Fed preserve its independence?
- Did inflation fall because supply conditions improved or because monetary policy unnecessarily destroyed demand?
- What happened to Black unemployment?
- What happened to minority-owned businesses?
- What happened to mortgage affordability?
- What happened to small-business credit?
- Who gained wealth?
- Who lost it?
- Who participated in the decisions?
- And did the Federal Reserve communicate honestly and fully with the American public about the choices it was making?
Those are results, too. Chairman Warsh is correct that Federal Reserve credibility cannot rest on speeches. But credibility also cannot rest simply on sounding tough about inflation.
It requires independence, transparency, intellectual diversity, representative participation, better data, disciplined judgment and measurable results for the entire economy—not merely financial markets.
If Warsh raises interest rates primarily to establish that he is an inflation fighter, he risks undermining the very credibility he seeks to establish.
If instead he genuinely “interrogates reality”—including realities outside Wall Street, Silicon Valley and elite economics departments—and resists political pressure while following the evidence, his promise of a more disciplined Federal Reserve could prove meaningful.
The next several FOMC meetings will tell us which version of the Warsh Federal Reserve we are actually going to get.