Warsh moves beyond latest data reaction to chart a for ward-looking path for Fed at Jackson Hole 

Financial Times Europe 1 Sep 2026 Mohamed El-Erian is the Rene M Kern pro fessor of prac tice at Whar ton School, chief eco nomic adviser at A li anz and chair of Gramercy Funds Man age ment Mohamed El-Erian 

Kevin Warsh delivered his first speech at the annual Jack son Hole cent ral bank ing con fer ence as the new chair of the Fed eral Reserve under the pres sure of remark ably high and unusu ally var ied expect a tions. Yet in a power ful half-hour present a tion, he went a long way towards assuaging doubts by deftly nav ig at ing both short- and long-term issues. That’s the good news. Less good is that the imme di ate media and mar ket focus has been on the less con sequen tial part of his speech. We should not under es tim ate the tricky task Warsh faced in the run-up to his Fri day speech: strik ing the right bal ance in respond ing to cri ti cisms about the mar ket’s lack of under stand ing of his so-called “reac tion func tion” — how the Fed would respond to changes in the eco nomy under his watch. At the same time, he had to adhere to the sym posium’s ori ginal object ive (includ ing this year’s focus on innov a tion) by address ing longer-term issues cent ral to the eco nomic out look and Fed policy effect ive ness. Des pite the con sid er able volume of Warsh’s writ ings and con gres sional testi mony, some Wall Street com ment at ors felt not enough was known about his reac tion func tion. They wanted not just details on this but also his cur rent view of the eco nomy and a bit of guid ance on future policy. It did not help that, in recent weeks, there has been more focus on infla tion. 

The cri ti cisms of the reac tion func tion and for ward guid ance, while mis dir ec ted, are under stand able. After all, for sev eral years, the mar ket has been con di tioned by a Fed that relied on a man tra of “data depend ency” for policy decisions, spoke often, and loved to issue for ward guid ance. The res ult is something that Warsh and many oth ers, includ ing me, regret: to quote Warsh, “a mar ket regime that looks to the Fed for its next trade” and, as such, plays the ref eree rather than the ball. Warsh had other reas ons to adhere to Jack son Hole’s ori ginal inten tions. We are liv ing through a period of his toric change driven by innov a tion-led trans form a tionand the rise of geo pol it ical factors in eco nom ics. Two other con sid er a tions have also fuelled the need for think ing about longer-term issues. First, the approach taken by Warsh’s pre de cessor, Jay Pow ell, who ten ded to focus on shorter-term issues. Second was the import ance of provid ing a “North Star” vis ion to help bring together, over time, a highly divided Fed eral Open Mar ket Com mit tee.

 In response to these pres sures, Warsh addressed the loud call for his views on the cur rent state of the eco nomy, the bal ance of risks to the Fed’s dual man date on employ ment and price sta bil ity, and his com mit ment to using the Per sonal Con sump tion Expendit ure index as the cent ral bank’s pre ferred infla tion tar get. The res ult ing tone in this sec tion, which has attrac ted the most media atten tion, was some what hawk ish. Warsh also restated his view that for ward guid ance has “out lived its role” and that it leads to the risk of the “hall of mir rors” phe nomenon where the Fed and the mar ket send back the same sig nals to each other. He referred back to the Fed’s big 2021 —22 policy mis take, in which pre vi ous incor rect for ward guid ance slowed the needed response, allow ing con sumer price infla tion to surge to more than 9 per cent. The res ult was a con sequen tial hit to afford ab il ity and the com poun ded effects are still with us today. 

Hav ing said all this, the most import ant sec tion of his speech poin ted to the ques tions that the cur rent phase of innov a tion poses for the eco nomy and policy effect ive ness, includ ing the role of AI as a “new factor of pro duc tion”. While it has attrac ted less media atten tion, this is the most inter est ing and import ant part of his speech, as the issue has massive implic a tions for eco nomic func tion ing, the evol u tion of mon et ary policy and fin an cial sta bil ity risks. It is an area where a lot more work is urgently required. Ulti mately, Warsh delivered a mas ter class in cent ral bank com mu nic a tion at a pivotal junc ture. He addressed imme di ate mar ket demands for details on his reac tion func tion while, more import antly, put ting the broader sec u lar real it ies of pro ductiv ity and AI front and centre. If mar kets can look past the short-term head lines and spend more time on the ongo ing stra tegic shifts, Jack son Hole 2026 may well be remembered as the moment the Fed eral Reserve began lead ing the for ward look ing eco nomic con ver sa tion once again, rather than merely react ing to the latest data.