Fed Chair Kevin Warsh used his first Jackson Hole speech to reject the idea that rising wages drive inflation, pointing instead to fiscal deficits and money creation. The shift arrives days before the Fed's September 16 decision, with markets already pricing roughly a 55% to 60% chance of a move at that meeting.
Kevin Warsh's first Jackson Hole address as Fed chair broke from a decades-old assumption: that inflation follows when workers get paid more. If deficits and money supply are the real drivers, the central bank loses its usual justification for tightening policy when hiring accelerates or paychecks grow.
Warsh breaks from Phillips curve orthodoxy
Summarizing the argument on Fox Business, David Asman said Warsh believes the Fed should re-examine the mistakes that led to the "great inflation" and drop the assumption that a hot labor market itself pushes prices up. Warsh instead locates inflation in fiscal deficits and money printing.
According to analyst Phil Kerpen: "the biggest change that we have at the new Fed chair" is this break from a wage-push narrative that had been institutionally protected for decades. Warsh said the Fed must be confident underlying inflation is moving toward its objective, and that it is clearly not yet moving fast enough.
The data support his framing. Inflation has run above the Fed's target for 65 months, yet core PCE over the past three months sits closer to the 2% goal. Meanwhile, average hourly earnings reached $37.62 in July 2026, while real hourly earnings sat at $11.30 — barely above where they stood a year earlier. Warsh projected that a one-percentage-point rise in annual productivity growth could double living standards within a generation, putting productivity rather than wages at the center of his thinking.
What it means for the September decision and rates
Kenny Polcari read Warsh's approach as deliberate hedging, saying the new chair is not boxing himself in and will let the market do much of the work before the September 16 meeting. Warsh has made the fiscal-inflation case before in the Wall Street Journal.
The rate backdrop already reflects the uncertainty: the 10-year Treasury yield sits at 4.67% against a Fed funds upper bound of 3.75%, a 10Y-2Y spread of 0.39%. A Fed that stops treating wage growth as an inflation input is likely one that hikes less reflexively when the labor market strengthens and cuts less aggressively when it softens — a volatility compression that is the quiet win for investors watching the September 16 decision.
Source: 24/7 Wall St.
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