Two senior Federal Reserve policymakers have used the platform of the Kansas City Fed’s annual Jackson Hole gathering to deliver stark warnings that U.S. inflation remains dangerously unanchored, sharpening the stakes ahead of a closely anticipated speech by Fed Chair Kevin Warsh on Friday.
Jeffrey Schmid, president of the Kansas City Fed, told CNBC on the sidelines of the Wyoming symposium that price pressures are “still stubborn and still sticky,” declaring that officials must “continue to find ways to break through” and return inflation to the bank’s 2 per cent target. His remarks come at a delicate moment for the central bank, which has held its benchmark policy rate in a range of 3.5 to 3.75 per cent as it wrestles with whether current settings are tight enough to do the job.
“I don’t know what we’re restricting currently with the rate policy that we’re at today,” Schmid said.
A Hawk on the Sidelines
Schmid has emerged as one of the more hawkish voices on the rate-setting Federal Open Market Committee in recent months, repeatedly making the case for higher borrowing costs to drag inflation back to target. His latest comments suggest that conviction has not wavered, even as markets debate whether the Fed will move at its 15-16 September meeting.
Still, Schmid struck a cautious tone when pressed on the near-term path, telling reporters that policymakers need more data, particularly on the demand side of the economy, before committing to a direction.
Investors are parsing every word from Jackson Hole as they try to handicap the Fed’s next move. Futures markets currently lean against a rate increase at next month’s meeting, though they price in a strong likelihood of one before the end of 2026.
Chicago’s Warning Shot
Austan Goolsbee, president of the Chicago Fed, was equally blunt in remarks to the Rapid Response podcast, describing the persistence of above-target inflation for more than five years as “disturbing” and warning that complacency would be a mistake.
“Everybody should be on edge, and I would say my biggest fear in the short run continues to be that inflation is not under control,” Goolsbee said. “We hear a lot about affordability and we better be mindful because if inflation starts going up again, it’s very hard to get rid of it.”
The Chicago Fed chief pointed to two specific threats: rising energy costs linked to conflict involving Iran, and the whiplash effect of shifting tariff policy from the Trump administration. Both, he suggested, are landing on households already grappling with painfully elevated prices. He warned of a deeper danger: that Americans could begin to accept elevated inflation as a permanent feature of the economic landscape, a psychological shift that would make the Fed’s job considerably harder.
Goolsbee, however, offered a sliver of reassurance, noting that the most recent three-month inflation trend “doesn’t look terrible.” And on rates, he suggested the Fed’s policy stance could ease over time, provided data confirms inflation is drifting back toward 2 per cent.
“If you’re a very interest-rate-sensitive industry, I would tell you, watch the data,” Goolsbee said, urging listeners to “not get so hyped up about what the market says” about the outlook.
The Numbers Behind the Nerves
The warnings landed a day after the Commerce Department reported that the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, registered 3.7 per cent on a year-over-year basis through July. That matched June’s reading and represented a step down from the 4.1 per cent annual increase recorded in May, but it remains well above the central bank’s target.
Economists offered mixed interpretations. Some argued the resilient print strengthens the case for a rate hike as soon as next month. Others said it simply keeps tightening on the table for later this year, without forcing immediate action.
A growing number of Fed officials have publicly backed the case for higher rates in recent weeks, or signalled openness to the idea, a notable shift in tone for an institution that cut rates late last year.
Political Pressure Adds to the Tension
Goolsbee did not shy away from the elephant in the room: the barrage of political attacks the Fed has absorbed from the Trump White House, which has clashed with the central bank over the pace and direction of monetary policy.
“The political attacks put me on edge,” Goolsbee said. He drew a stark historical lesson: in nations where political authorities have interfered with monetary policy decisions, he argued, “inflation comes roaring back.”
The remarks underscore the increasingly fraught environment in which Warsh, the new Fed chair, must operate. Warsh is scheduled to deliver the symposium’s marquee address on Friday, and investors are hungry for clues about the policy path. But those expectations are tempered by the fact that Warsh has been reluctant to offer firm forward guidance, and has even drawn criticism for declining to fully explain how he arrives at monetary policy decisions.
Why it Matters
The converging message from Jackson Hole is that the Fed’s inflation fight is far from finished, and that the easy victories, if there ever were any, have already been claimed. With energy markets roiled by Middle East conflict, tariff policy lurching unpredictably, and political pressure on the central bank intensifying, the path back to 2 per cent looks longer and more uncertain than policymakers hoped just months ago. For North American households and businesses, the implication is sobering: borrowing costs are unlikely to fall meaningfully any time soon, and a rate hike before year’s end remains a live possibility, a scenario that would ripple through everything from mortgage markets to corporate refinancing schedules.