08/28/2026
Mortgage rates ended the week higher. Fed Chair Kevin Warsh delivered a hawkish speech at the Jackson Hole Economic Policy Symposium. Yields and rate hikes odds rose as the yield curve bear flattened.
The 2% target is “firm” and “fixed”:
Warsh explicitly rejected any suggestion that the Fed might tolerate a permanently higher inflation rate. He also said inflation is not necessarily self-correcting or mean-reverting, meaning policymakers cannot simply wait for inflation to drift back toward target. This is especially important because it rejects the argument that the Fed should accommodate 3% inflation because of structural changes, fiscal deficits, supply constraints, tariffs, or geopolitical disruptions.
Inflation is the Fed’s predominant concern:
Warsh said the Fed’s “predominant focus right now should be on prices.” That is a direct statement about the current balance of risks. Employment is not presently the constraint on policy.
The economy appears to have strengthened:
Warsh highlighted approximately 9% four-quarter growth in equipment and intangible investment, strong AI-related capital expenditures, corporate profit growth exceeding 20%, healthy consumption, and private domestic final purchases growing at nearly a 3% pace during the calendar year. Strong growth is not inherently hawkish, but it reduces the downside economic risk of tightening.
He did not explicitly commit to a hike. Warsh said he was committed to a policy discipline, not a specific decision, and declined to provide either a rate path or a mechanical reaction function. This preserves the option to hold in September if incoming inflation or labor data soften materially.
Inflation expectations remain stable:
He said medium-term inflation expectations were generally stable and that inflation compensation in the swaps market conveyed a similar message. Anchored expectations reduce the urgency for an outsized move, although they do not eliminate the rationale for a 25-basis-point hike.
