JACKSON HOLE, Wyoming — Federal Reserve Chairman Kevin Warsh delivered a warning Friday that the central bank may still have work ahead to bring inflation under control, telling policymakers and financial leaders that recent improvements in inflation are not sufficient by themselves to declare victory. Speaking at the Federal Reserve’s annual economic policy symposium in Jackson Hole, Warsh emphasized that the central bank’s 2% inflation objective remains firm and that policymakers need convincing evidence that underlying inflation is moving toward that target at an adequate pace.

“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,” Warsh said. His remarks provided one of his most detailed explanations of how he is evaluating inflation since becoming Federal Reserve chairman in May and offered financial markets additional insight into the conditions he believes must be met before the central bank can become comfortable with the direction of prices.

Warsh acknowledged that inflation readings during the summer were better than expected, but he cautioned against interpreting several favorable reports as proof that the underlying inflation problem has been solved. He argued that the Federal Reserve must examine the broader direction of prices rather than place excessive weight on individual monthly reports. The central bank’s preferred inflation gauge, the Personal Consumption Expenditures price index, showed annual inflation of 3.7% in July, leaving inflation substantially above the Fed’s 2% objective.

Warsh also pointed to the breadth of price increases throughout the economy. During the previous 12 months, 54% of the goods and services represented in the PCE index experienced price increases greater than 3%, according to his remarks. He contrasted that figure with an average of approximately 32% during the two decades preceding the pandemic. Those figures help explain why Warsh is unwilling to conclude that inflation has been defeated merely because some recent monthly readings have improved.

The chairman also made clear that the Federal Reserve has no intention of changing its inflation target to accommodate higher prices. “There should be no misunderstanding,” Warsh said, describing the 2% PCE inflation objective as a “firm, fixed target.” He argued that policymakers cannot simply assume inflation will eventually return to 2% on its own. Instead, the Federal Reserve has a responsibility to use monetary policy as necessary to restore price stability.

That position leaves open the possibility of additional interest-rate increases if inflation remains persistently above target. The Federal Reserve has maintained its benchmark federal funds rate in a range of 3.50% to 3.75% since December. At the Fed’s July meeting, three policymakers dissented from the decision to leave rates unchanged and instead favored tighter monetary policy, demonstrating that concerns about persistent inflation are not confined to Warsh.

Warsh did not announce that he would support an interest-rate increase at the Federal Reserve’s next meeting on September 15-16. He instead resisted providing forward guidance that would commit the central bank to a particular decision before policymakers receive additional information about inflation, employment and economic growth. His message suggested that the September decision will depend heavily on the economic evidence available when officials meet.

His assessment of broader financial conditions was nevertheless notable. Warsh said credit and lending markets currently show few signs that monetary policy is significantly restraining economic activity. He pointed to resilient economic growth, continued consumer activity and strong business investment, including investment associated with artificial intelligence and infrastructure. A strong economy can allow the Federal Reserve greater flexibility to maintain or increase interest rates if officials conclude that additional action is necessary to control inflation.

Higher interest rates are intended, in part, to restrain borrowing and demand when inflation becomes excessive. If businesses continue investing, consumers continue spending and credit remains readily available despite current interest rates, Federal Reserve policymakers could determine that monetary policy is not restrictive enough to bring inflation back to 2% at an acceptable pace. At the same time, officials must weigh the risk that keeping rates too high for too long could eventually weaken employment and economic growth.

Warsh emphasized that the Federal Reserve therefore remains responsible for both sides of its congressional mandate: maintaining stable prices and supporting maximum employment. He rejected the idea that those objectives necessarily conflict over the medium term, arguing that persistent inflation can itself damage economic prosperity by reducing purchasing power, increasing uncertainty and making long-term financial decisions more difficult for households and businesses.

The labor market currently appears to be less of an immediate concern to Warsh than inflation. Unemployment remains relatively low while wage growth has moderated, providing policymakers with some room to concentrate on price stability. Warsh also cautioned against treating wage growth as a reliable predictor of future inflation, suggesting that policymakers must consider a much broader collection of economic indicators when determining the appropriate course for interest rates.

Financial markets reacted quickly to the speech as investors reassessed the likelihood of another rate increase. Traders increased expectations that the Federal Reserve could raise rates at its September meeting, with futures markets placing the probability at roughly 55% following Warsh’s remarks, compared with about 40% beforehand. The shift demonstrated how closely investors are examining Warsh’s language for indications of where monetary policy could move next.

Despite the market reaction, Warsh stopped short of promising any particular action. “I stand here today committed to a discipline, not to a decision,” he said. The statement underscored his argument that Federal Reserve policy should be determined by economic conditions rather than by promises made weeks or months before policymakers have the information necessary to make a decision.

That distinction captures the central message from Jackson Hole. Warsh did not announce an interest-rate increase, but neither did he suggest that the Federal Reserve considers its battle against inflation finished. Instead, he established a clear test for future monetary policy: underlying inflation must demonstrate a convincing and sufficiently rapid movement toward the Federal Reserve’s 2% objective. If the economic data fail that test, Warsh made clear that the central bank believes it still has work to do.

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By B. Wilder, Staff Reporter contributed to this report.

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