Warsh signals Fed may need to hike rates if above-target inflation persists

JACKSON HOLE, Wyoming, Aug 28 (Reuters) - The U.S. central bank will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2%, Federal Reserve Chairman Kevin Warsh said on Friday, coming closer than he has to acknowledging interest rate hikes may be needed to ease price pressures.

"Here is my standard: We must be confident that underlying inflation is moving to our ‌objective, clearly and at sufficient speed. Otherwise, we have work to do. That's our job ... our mandate ... and our charge to keep," Warsh said in the keynote speech to the Fed's Jackson Hole economic symposium in Wyoming.

With the labor ‌market stable, inflation too high, and little in financial conditions to indicate that the Fed's policy rate is restraining it, he said, "The Fed's predominant focus right now should be on prices."

The remarks drew applause from an audience of global central bankers hungry for more than his previous vague promises to deliver price stability, and ​unsettled by his refusal to say how he would do so. Markets heard the change in tune, and moved to increase bets on a rate hike next month even as they still priced in a healthy dose of skepticism that he will deliver it.

"We're moving up on six years where we've been above target" on inflation, former Philadelphia Fed President Patrick Harker said. "You can't keep saying this is our job" and then not act, he added. "As the old saying goes, actions speak way louder than words."

While much of Warsh's 16-page address focused on large issues, like the influence of artificial intelligence, that he feels will be critical in the long run, it also included some key acknowledgements — including that "short-term interest rates are the predominant tool to achieve the dual mandate."

Notably, Warsh said the recommendations of five task forces he has ‌commissioned to study longer-term issues "will come later and have no bearing on decisions we make in ⁠the current policy conjuncture. But I believe that for future policy challenges, this intellectual investment today will leave us far better prepared."

He did not directly address recent market interventions by U.S. Treasury Secretary Scott Bessent, which have put downward pressure on long-term Treasury yields. But he did say the Fed "needs clear market signals, as unfiltered as possible" to set proper monetary policy.

And what came through — to a degree ⁠not evident in his first 99 days in a role in which he promised to deliver sweeping change at the Fed — was a sense of central banking normalcy: a Fed chief giving his take on the economy and his thoughts about what may be next for policy.