Federal Reserve Chair Kevin Warsh signaled on Friday that the central bank may need to raise interest rates in the coming months to continue combating persistent inflation. Speaking at the Fed’s annual economic conference in Jackson Hole, Wyoming, Warsh indicated that despite recent declines in gas prices, broader inflationary pressures remain elevated, suggesting a potential interest rate increase at the Federal Open Market Committee (FOMC) meeting in mid-September.

Warsh, who has typically refrained from committing to specific policy moves, emphasized the importance of awaiting new economic data before deciding on the next steps. His comments pointed to a cautious approach but left open the possibility of a rate hike if inflation does not show meaningful improvement by the time of the upcoming government price report, which is due just days before the central bank’s meeting.

While Warsh’s remarks were largely well-received by economists and fellow Fed officials at the conference, there was some critique about the timing and clarity of his signals. Some analysts saw the speech as laying the groundwork for a September rate increase, potentially increasing pressure on the Fed to act. Adam Posen, president of the Peterson Institute for International Economics, cautioned that if the Fed does not raise rates in September, it could raise questions about the bank’s policy direction.

Despite expectations that a Fed rate hike can lead to higher borrowing costs across mortgages, auto loans, and business lending, longer-term interest rates, including those on the 10-year Treasury note, showed little reaction to Warsh’s comments. This muted response suggests that investors remain confident the Fed can control inflation without significantly increasing long-term borrowing costs. Currently, the average fixed 30-year mortgage rate stands at 6.66%, slightly above levels from a year ago.

Warsh highlighted that inflation remains broad-based and not solely driven by volatile factors like energy prices linked to the ongoing conflict involving Iran. He stated that more than half of the goods and services tracked by the government have experienced price increases of 3% or more over the past year, a marked rise compared to pre-pandemic norms. Warsh also said inflation is unlikely to return to the Fed’s 2% target without deliberate policy moves, reflecting concerns shared by Fed officials who supported recent rate hikes.

Meanwhile, at the same event, Harvard economist Kenneth Rogoff offered a more tempered view on economic growth prospects, particularly regarding the potential impact of artificial intelligence. While not addressing Warsh directly, Rogoff warned that expectations about AI’s growth-boosting effects might be overstated and noted that any significant growth acceleration could prompt higher interest rates.

The Jackson Hole conference also featured the return of Fed Governor Lisa Cook, who recently won a Supreme Court ruling allowing her to remain in office amid a legal challenge over her potential removal by the current administration. Political tensions surrounding the Fed, which were heightened last year, have eased this year, with no moves against Fed regional bank presidents amid prior concerns.

Warsh’s speech marked one of his most comprehensive public assessments since assuming office in May, providing insight into the Fed’s ongoing challenge of balancing inflation control while sustaining economic growth. The central bank’s decision at the September meeting is now closely tied to incoming economic data and developments in inflation trends.