Kevin Warsh says there's still 'work to do' to fight inflation. Will the Fed hike rates at the September meeting?

September's Federal Open Market Committee (FOMC) meeting could come with the first interest rate move of 2026, though any change to the federal funds rate will depend on the labor market and recent inflation trends.

Fed Chair Kevin Warsh said on August 28 at the Jackson Hole Economic Policy Symposium that the central bank still has “work to do” fighting elevated inflation and cited its “readiness to act” to achieve price stability. For markets, it was the clearest signal to date that Warsh’s Fed could tighten monetary policy further if progress on inflation stalls.

However, governors may not agree. In an interview with Reuters on September 3, Fed Governor Christopher Waller said he would be open to keeping the federal funds rate in the current range of 3.50% to 3.75% if the next Consumer Price Index (CPI) report on September 11 shows inflation cooling.

While the Fed has held rates steady since late 2025, Warsh has pledged to bring down inflation and “deliver price stability,” though he has so far provided little concrete guidance on the direction of future monetary policy.

And that sets up the most anticipated question for September’s FOMC meeting: Will the Fed raise rates, or will it continue to remain on hold?

J.P. Morgan Wealth Management strategists expect a 0.25% rate hike at the September meeting, reflecting a higher bar for inflation confidence amid energy-driven price risks, as well as a Fed that is increasingly focused on reinforcing its credibility after holding steady in July despite a divided vote.

“While there has been little evidence that the spike in energy prices is having an inflationary impact on the labor market or core goods, there is a clear commitment from the FOMC to stay committed to a 2% inflation target," J.P. Morgan Wealth Management's Chief Investment Strategist Phil Camporeale said. "This will keep the last three FOMC meetings of 2026 'in play' unless we get meaningful improvement in inflation data.”

Why does the September Fed meeting matter so much?

The September Fed meeting is ultimately about confidence. The Fed is trying to determine whether inflation is cooling in a clear, consistent way and moving toward its long-term target of 2%. At the same time, policymakers have signaled they are willing to tolerate some slowing in growth and hiring if that’s the price of bringing down inflation.

Since Warsh took over as chair in May, the Fed held rates steady at both the June and the July meetings, despite inflation fears tied to the ongoing Iran conflict and the subsequent spike in oil prices. The last meeting in July offers important context: it revealed a divided FOMC when the decision to hold rates came with a 9–3 vote split, with some committee members favoring a quarter-point rate hike.

At his last post-meeting press conference, Warsh insisted the central bank was not on “a pause” but rather conducting a “rigorous review of the economic situation” and “will not hesitate to act” if needed. But the lack of forward guidance caused markets to question the Fed’s reaction function – that is, how it responds to incoming data.

When the Fed “raises rates,” it increases its target range for the federal funds rate (the rate that banks charge each other for overnight reserve loans, which in turn influences broader borrowing costs and financial conditions). But markets often move less on a single decision than on where rates are going – and what the Fed signals about what comes next.

What to watch before the next Fed decision on September 16

The Fed is unlikely to base its decision next week on any single report. Instead, policymakers are looking for a consistent pattern across three areas that, together, can speak to whether inflation pressures are truly easing or at risk of re-accelerating:

Inflation and job market data

Headline inflation is typically tied to the CPI report but the Fed puts more weight on the Personal Consumption Expenditures (PCE) index because it captures a broader range of spending and can adjust as consumer habits change. Headline PCE rose 0.2% from June to July, while remaining unchanged year over year at 3.7%.

For September, the key question is whether inflation is cooling in a consistent way across categories like food, services and energy – or if price growth is still stuck above target.

The last CPI report released on August 12, meanwhile, showed prices rose by 0.1% in July, in line with expectations, while the annual inflation rate fell to 3.4% (down from 3.5% in June). Despite the tame CPI reading, renewed oil shocks from the ongoing conflict with Iran have kept inflation fears front and center. The next CPI report comes out September 11, just days before the Fed’s next meeting.

Meanwhile, Fed officials have been closely monitoring the labor market after July initially showed job losses, though that was revised to an increase of 21,000 jobs. And in the latest report, 162,000 jobs were added in August, well above the expected 53,000 and the strongest month of job growth since March. The unemployment rate also remained steady at 4.1%. With this new jobs data further supporting the Fed's view that the labor market is stable, the interest rate decision may be more heavily influenced by the inflation picture.

Warsh’s recent remarks and July’s dissenting votes

Beyond the data, the Fed’s messaging will be a key driver of expectations going into the September meeting. Warsh’s recent remarks in Jackson Hole signaled a hawkish shift on inflation that boosted market expectations of a looming rate hike.

Warsh reinforced two points: First, the Fed’s job of bringing down inflation is not yet done. Second, the central bank intends to keep its options open if progress stalls on achieving price stability.

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh said. “Otherwise, we have work to do.”

The Fed chair also said he was “impressed” with the economy’s overall strength but remains concerned that “underlying trends” in inflation data have not improved.

Amid wider concerns about surging bond yields and persistent inflation, market expectations for a rate hike surged to 70% following Warsh’s comments at Jackson Hole, according to the CME FedWatch Tool. While expectations shifted up and down in the days following his speech, they were still more in favor of a rate hike by Friday September 4, after the August jobs report was released.

July’s 9–3 vote split adds another layer of complexity to the September meeting. Multiple dissents suggest there is an active debate within the committee about whether policy is already restrictive enough or whether ongoing inflation warrants additional tightening. Markets will be watching whether that hike-versus-hold debate persists.

Here's what to listen for next:

The bottom line: How you can prepare for a potential rate hike in September

September remains a live hike-versus-hold decision – and markets may react as much to what the Fed signals about the path ahead as to the decision itself. With inflation still above target and the labor market stronger than expected in August, the Fed has a tough decision to make.

For investors, the key is thinking about how a shift in rate expectations could ripple across major asset classes.

Though bond yields are not directly impacted by the Fed's rate decisions, they can move based on higher rate expectations. When bond yields rise, prices on existing bonds may fall because older bonds paying lower rates become less attractive relative to new issues.

Stock valuations may also change since they can rest on earnings that are expected years in the future and may be sensitive to rising yields.

Then there are loans: Higher yields can make borrowing and refinancing more expensive for companies and individuals, which can affect wider risk appetite in credit markets.

When the rate outlook is uncertain and inflation remains a live risk, it may be a good time to pressure-test your financial plan and make sure your portfolio is built to handle more than one outcome.

Here are a few things investors may want to consider:

Lastly, investors may want to watch whether the next set of inflation data and Fed communication makes it clearer that inflation is cooling in a consistent way – or keeps the Fed focused on doing more.

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