Automatic translation: Originally published in Finnish 31/08/2026, 04:35 GMT. Give feedback here.

European and US stock markets have behind them a positive week, despite interest rate expectations swinging upwards once again. Fed Chair Kevin Warsh sent a clear message at the Jackson Hole central bank symposium on Friday that the central bank may still have work to do to curb inflation.

The tone of the speech was more straightforward than before: Warsh stated that if core inflation is not seen returning clearly and quickly enough toward the two percent target, interest rate hikes could come into the picture. The markets reacted immediately, as the probability of an interest rate hike at the September rate meeting jumped in futures markets in one go from around 40 percent to around 60 percent.

US inflation figures

Source: LSEG

This is driven by inflation trends that have failed to convince the central bank. The Fed's primary gauge, the PCE price index, stood at 3.7% year-on-year in July (core PCE at 3.3%), and around half of the consumer price basket is still rising at a pace of over three percent. According to Warsh, recent data does not show that the underlying inflation trend has improved significantly, even though inflation in the US is soon of kindergarten age and has been above the central bank's target for 5.5 years. At the same time, he found the labor market to be stable and stated that there are currently few signs in the financial environment of monetary policy having a tightening effect. At the July meeting, three members already voted in favor of tightening, which on the other hand highlights the internal division within the committee.

Less surprisingly, Warsh avoided giving explicit forward guidance or a reaction function, which is why uncertainty remains high ahead of the September rate meeting. Crucial data is still to come: one August inflation figure as well as employment and job statistics before the decision.

The speech also features an interesting subplot directed at the Treasury: Warsh did not directly comment on the bond buybacks initiated by Treasury Secretary Scott Bessent, which have weighed down long-term government bond yields, but emphasized that the Fed needs market signals that are as unfiltered as possible to support its interest rate decisions. This can be interpreted as an indirect remark on the impact of government market interventions on interest rates. In his speech, Warsh also highlighted five working groups he established himself to examine longer-term issues, such as the impact of artificial intelligence on the economy; however, according to him, these are not intended to influence near-term interest rate decisions.

The turnaround in the tone of Warsh's speech is a significant shift compared to his first 99 days in office, during which the market suspected him of being too accommodating to President Trump's rate-cut wishes. The tougher rhetoric, combined with persistent inflation, is likely to increase volatility in the bond market in the coming weeks, meaning we are in for an exciting time right up until the rate meeting.